TUNE Research

with additional insight from

Acceleration Partners

Executive Summary

Where is performance marketing now? And where is it going?

In April 2018, TUNE and Acceleration Partners surveyed nearly 2,300 performance marketers in the U.S. and U.K. who are managing a combined $16.6 billion in annual sales.

Survey respondents anticipate that nearly two-thirds of traditional brand marketing will soon be moving to performance channels. This clear indication of confidence and high expectations leads us to a key takeaway: Performance marketing is eating brand marketing.

In 2011, legendary technologist and venture capitalist Marc Andreessen famously said that software was eating the world. Since he helped build the world’s first popular web browser, Mosaic, founded and sold multiple successful companies, and invested in some of Silicon Valley’s top startups, people listened.

His point? Simply that software was taking over as the basis of value creation.

A similar phenomenon is occurring in performance marketing, which is dramatically expanding its influence in 2018.

In 2015, performance marketing drove 14% of all e-commerce transactions in the United States. In 2016, it was responsible for 16% of e-commerce … and Forrester says the space will see a 10% compound annual growth rate until 2020. For a fairly mature industry, this is rapid growth by any benchmark.

In the following pages, we’ll highlight how performance marketing is influencing enterprise and brand marketing plans, and how you can capitalize on these trends.

PERFORMANCE IS EATING BRAND MARKETING

Marketing Measurement is Where it Starts

Business guru Peter F. Drucker is credited with crystallizing an essential business insight:

“What is measured, improves.”

Measuring marketing has been a challenge since its inception. John Wanamaker famously groused that half the money he spent on advertising was wasted, but unfortunately, he didn’t know which half.

At TUNE, we fundamentally believe that all marketing should be measured.

“We want to help marketers measure all of their marketing not because we love analytics, but because we love performance,” TUNE Chief Executive Officer Peter Hamilton says. “When you measure marketing the right way, you know your return on investment. And when you know your return on investment, you know where to allocate future budget.”

Measurement is wonderful, but it’s not easy.

Unfortunately, some members of the performance and affiliate marketing space have manipulated measurement, and the results are bad for brands, bad for performance marketers, and bad for the entire marketing ecosystem. Cookie stuffing, click spamming, and other forms of attribution fraud obscure true links between marketing causes and sales effects.

On the upside, fraud protection not only exists, but is widespread today. Even more fortunately, the ability to manipulate measurement is increasingly difficult when proper attribution, fraud protection, and careful, trained marketers are able to oversee their performance marketing channels.

All of the above have helped measurement become a standard practice. And that’s driving the growth of performance channels.

“Other digital channels such as display advertising require that you pay in advance for a specific number of impressions,” says Robert Glazer at Acceleration Partners. “These up-front costs, combined with the questionable ROI of impression-based advertising, have led marketers to increasingly turn to performance marketing.”

62% of Brand/Enterprise Marketing Budget Moving to Performance

The majority of affiliate and performance marketers agree: the space is growing fast.

The majority of survey respondents (70%) have observed that 50% or more of brand and enterprise marketing budget is moving to performance marketing. Survey responses range from 0% of budget (five responses) to 100% of budget (128 responses), with the average across all respondents clocking in at 62% of budget moving to performance.

There are good reasons for this growth.

“There is a growing demand for all marketing to be performance-based, says Laurie Cutts, Head of Partner & Media Channels at Acceleration Partners. “Companies are no longer tolerating paying for things and being kept in the dark about what they are getting in return.”

Performance Is Out-Competing Brand Marketing

Our research indicates that there are five key reasons for the performance marketing industry’s 10% compound annual growth rate.

The most important? Performance marketing with distributed partners is simply more flexible and expands marketing reach when compared with traditional marketing.

Ultimately, the performance partnership model is easier to scale and increase reach quickly, and the pay-for-performance mechanism inherent to affiliate marketing ensures that, with sufficient oversight and fraud protections, brands and retailers are able to vastly reduce marketing risk.

2018: STATE OF PERFORMANCE MARKETING

What did we learn about performance marketers who work in the field today?

Performance Marketers Work Across the Entire Marketing Ecosystem

A decade ago, affiliate marketing may have lived in the basement, the coffee shop, or the shabby little office on the wrong side of the tracks.

Today, performance marketers are everywhere, in every niche of the marketing ecosystem. A quarter work in agencies, another quarter work directly for brands, and approximately 16% work with ad networks that enable performance partnership marketing at scale.

The biggest group?

Thanks to the prevalence of software-as-a-service, almost 31% work for marketing technology companies: marketing platforms.

Company type All respondents
Agencies 24.1%
Brands 24.1%
Ad networks 15.6%
Marketing platforms 30.6%

Performance Marketers Typically Work in Small Teams

Despite joining the mainstream marketing ecosystem, performance marketers still tend to work in smaller teams. Among survey respondents, 65% of performance marketers work in teams of 30 people or fewer, and 80% work in teams of 50 people or fewer.

Performance Marketers Drive Significant Revenue

In spite of their relatively small size, performance marketing teams drive significant revenue: $16.6 billion among the 2,300 survey respondents. That being said, large players dominate the space.

While the average performance marketing team manages $7.3 million in annual revenue, the median number is quite a bit lower: $750,000.

Not surprisingly, it’s larger teams that are driving more revenue.

Almost 70% of teams with fewer than 10 members drive less than $500,000 in annual performance marketing revenue, while about 25% of teams with more than 100 members drive over $50 million in annual performance marketing revenue.

You do not have to be huge to be successful, however. Plenty of teams in the 10 to 30 person range drive about $1 million in annual revenue.

Performance Marketers Work Across Many Verticals

Performance marketers used to confine their focus to a limited number of verticals. E-commerce retail has always part of the picture, as have information, finance, dating, and a few other categories.

Increasingly, however, there’s a wide diversity of verticals that use affiliate marketing, and newer categories, such as subscription services for Netflix, Hulu, or other over-the-top TV providers, are growing fast.

As illustrated below, many marketers work in multiple categories simultaneously, or sequentially.

Vertical All respondents
Retail goods & services 33.2%
Mobile app installs 23.9%
Restaurant 19.2%
Finance 18.5%
Health 17.7%
Travel (hotels, flights, tours) 17.6%
Subscriptions (streaming media) 17.3%
Education 17%
Medical 14.8%
B2B services 13.7%

Performance Marketers Partner With Many Services and Channels

Most performance marketers use multiple services and channels to drive demand.

Interestingly, the top three partner types (retail, business development, and loyalty programs) are strongly connected to big brands, retailers, and enterprises. Lead generation services are also often in partnership with large brands.

Partners used All respondents
Shopping marketplaces / tech 34.9%
Business development services 34.8%
Loyalty programs 34.3%
Coupon / deal services 30.7%
Influencer platforms 26.7%
Lead generation services 23.1%
Content creators / bloggers 22.8%

Smart performance marketers use a lot of platforms and place a lot of bets to hit their goals. They’re seldom tied into any one individual partner type, and many use three to five partner types simultaneously.

“Content creators and bloggers are among the most sought-after partnerships for many of Acceleration Partners’ clients,” says Laurie Cutts. “We have clients that focus on building relationships with content partners to increase brand awareness. Even for those brands who have diverse programs with various types of affiliates (coupon, loyalty, etc.), there is still a big focus on content publishers.”

Notably, content providers such as Buzzfeed and Business Insider are joining the game, becoming affiliates that are particularly attractive to brands thanks to their large reach, says Cutts.

In terms of specific marketing channels, there’s a lot of diversity as well.

Performance marketers use multiple channels to achieve their goals. Social media and mobile (both apps and web) continue to dominate. And, since social and email are mostly mobile … it’s clear that mobile is where most of the action is.

What marketing channels do you use? All respondents
Social media 57.5%
Mobile app 43.8%
Mobile web 41.1%
Email 39.1%
TV 30.7%
Content marketing 28.1%
Video 26.4%
Desktop web 25.8%
Podcasts 17.2%

Performance Marketers Are Testing Sophisticated Attribution Models

While there’s little doubt that last click is still the most-used attribution model, performance marketers are trying multiple models on for size.

What attribution models do you use? All respondents
Multi-touch 45.3%
First click 43.2%
Position based 35.6%
Last click 24.5%
Time decay 24.2%
Linear 23.2%

“We are increasingly seeing brands using first click, position-based and multi-touch models for commissioning their affiliates. This is especially true for retailers that work with content partners,” says Cutts.

OPTIMIZING FOR SUCCESS TODAY

There are a few clear takeaways from this data that highlight what successful affiliate and performance marketers are doing today.

Connected to Brand Marketing

Performance marketers are connecting to brand marketing more and more. This makes a ton of sense, and we’ve seen marketers boost ROI up to a staggering 1,000% by combining paid, earned, and owned media.

Approximately 68% of performance marketers always or often plan performance campaigns in conjunction with organic marketing such as PR, influencer, and content marketing campaigns. This is critical, because organic and paid campaigns perform better together: each synergistically improves the other, and often 1 + 1 = 3.

Do you coordinate campaigns with organic marketing efforts? All respondents
Always 37.3%
Often 30.3%
Sometimes 25.4%
Seldom 4.2%
Never 2.9%

Unsuccessful affiliate marketers coordinate efforts least often with organic marketing teams.

Alternatively, 69.3% of the most successful performance marketers — those who drive $20 million and higher in annual sales — always or often work hand-in-hand with organic marketing initiatives.

Focusing on Global

Brands are thinking globally and performance marketers are following by not just running campaigns in their own country … or even continent.

Regions you work in All respondents
Africa 10.5%
Asia 19.5%
Europe 34.3%
North America 66%
South America 22.8%

Mobile Is Becoming the Default

Increasingly, mobile is the default mode of consumption for anything digital. Affiliate marketers are a little behind the curve here, but catching up quickly.

Overall, only 62% of all performance marketing offers — coupons, promotions, banners, or even long-form content — are mobile-optimized.

That’s somewhat surprising, given that social media, mobile apps, mobile web, and email are the top four channels respondents are using … and two are completely mobile, while the other two are mostly mobile.

But it’s understandable given that affiliate marketing came of age in the desktop web era — and that models of measurement and tracking can be more challenging in mobile apps than on the web.

It’s clear there’s some work to do here yet.

Working Smarter, Not Harder

One thing that becomes extremely obvious when looking at performance marketing: teams are small and lean, and that has implications. A critical one: placing more importance on using great technology with automation tools and strong partner management functionality.

We’re not talking exactly “set it and forget it,” of course.

Performance marketers will always need to pay attention to their campaigns, their metrics, and their partners. But given the time constraints many performance marketers have, affiliate management tools that automate fraud detection, capping and spend limits, and automatically optimize campaigns, can significantly help.

These enable smart teams to focus on relationships, partnerships, and creative execution, rather than all the metrics every hour of the day.

FUTURE: WHERE PERFORMANCE MARKETING IS GOING

Performance Brands

It’s clear that brands are taking performance marketing into places it hasn’t been before.

A quarter of the performance marketers we surveyed are working directly for brands. Many of the quarter that are working for agencies will manage some of their campaigns for brands.

And we’re seeing the change too, at HasOffers.

“We’re seeing our customer composition diversify,” says Cameron Stewart, Chief Operating Officer at TUNE. “Many of our new HasOffers clients are brands using the product internally to manage external teams of marketers. These are global brands who are embracing what Acceleration Partners’ Robert Glazer calls performance partnerships, and it’s an exciting change.”

This new relationship allows brands to do what they do best while enlisting the aid of performance marketers who are experts in multiple niches.

“Brands are increasingly leveraging a ‘Marketplaces of Marketing’ model that allows them to partner with a wide range of brand-aligned marketers who focus in specific areas (such as Instagram, content, loyalty, etc.),” says Robert Glazer, Founder & CEO at Acceleration Partners. “This allows brands to partner with experts whose incentives are aligned and who promote their products and services in new and more innovative ways instead of trying to be an expert in every new channel that develops.”

Loyalty Programs

One particularly interesting use we’re seeing a lot of recently is brands employing a performance marketing solution like HasOffers to manage their customer loyalty programs.

Rewarding customers for activities that result in new customer acquisition is a no-brainer, but rewarding customers for increasing share of wallet is also part of the mix. Many of these programs are managed internally, but if external partners can help brands, enterprises, and retailers find new ways of delivering more value from existing customers for brands, that unlocked value can be shared.

Interestingly, loyalty programs are the fastest-growing partner type right now, according to the performance marketers we surveyed.

Partner All
Loyalty programs 38.4%
Shopping marketplaces / tech 35.7%
Coupon / deal services 31.2%

It’s important for brands considering using loyalty programs as part of their affiliate marketing mix to monitor them for truly incremental revenue, whether from existing customers or new customer acquisition, and whether it’s an in-house program or one with external partners.

Loyalty programs can significantly enhance profitability, but programs that are poorly managed, constructed, or monitored can simply result in cannibalization, and therefore reduced margin.

This is just one place where a real relationship — and the right management platform — can help.

“Across all channels, companies are calling for aligned incentives and transparency,” says Cutts. “They want transparency on what they are paying for and what they can expect in return.”

Business Development

Business development programs, once the sole domain of high-end and expensive BD reps, are starting to take advantage of scaled, performance-based partner-driven activities.

Fourth on the list of fastest-growing partner types, business development services use affiliate-style techniques to shake up the slow, expensive world of high-value deals. We see this working especially in the development of two-sided marketplaces, like car sharing services or accommodation platforms.

Marketplaces like these exist to bring demand and supply together, and performance marketing-style business development can help achieve both at scale and at speed.

Influencer Campaigns

Influencer platforms are clearly hot. But they’re only fifth on our list of fastest-growing partner types, which highlights a certain ambivalence in the performance marketing space.

One potential reason is measurement. Or, rather, the lack thereof.

While affiliate marketing lives and dies by measurement, influence campaigns have historically proven challenging to track. In some cases, this is due to platforms — Instagram is the most popular platform for influencers, at least for consumer products, and Instagram’s long-standing lack of linking ability might be part of it. And some influencers have resisted direct measurement, saying that the act of linking removes some of the organic appeal of the micro-celebrity endorsement.

Moving past these issues will be key in enabling influencer marketing — which really, has been around for a very long time under different names — to achieve its full potential.

For more on how marketers and ad networks develop their influencer channel into a valuable and measurable revenue source, watch this webinar recording.

In fact, the same could be said for virtually any channel.

“Performance marketing is on the rise with the affiliate marketing model being leveraged for customer acquisition as well as scaling business development and influencer partnerships,” says Robert Glazer of Acceleration Partners. “Rather than paying in advance and achieving questionable results, companies are looking to pay for results whether cost-per-acquisition, cost-per-lead or other measurable outcomes. This approach will be leveraged more prominently through all marketing channels over the next few years, particularly by large brands.”

Performance 2020: 5 key requirements

Performance marketing has a strong growth record and is continuing to accelerate. But there are five key requirements that brands, enterprises, and performance marketers need to consider to keep that trend going.

1. Fraud Protection

Marketers need to know that they can engage in affiliate and performance marketing initiatives with strong protection against fraud. Advertising fraud and marketing fraud will never be 100% eliminated, but marketers need to be assured that the vast majority of their spend is warranted, safe, and fraud-free.

“The issue of fraud needs to shift to focus on trust. Fraud is reactive; trust is proactive. And trust requires relationship.”

– Lucas Brown, Co-Founder of TUNE; founding architect of HasOffers

2. Automation & AI

Managing partnerships at scale requires attention to detail and care, but automation can help. Knowing which partners are meeting, exceeding, or failing to meet acceptable parameters is great. Automatically setting levels at which affiliates are warned, turned off, or dialed up is even better.

“As more marketers and more channels adopt performance frameworks, it will be critical for marketing platforms to build in more automation and AI to help marketers make the best decisions at scale.”

– Lucas Brown, Co-Founder of TUNE; founding architect of HasOffers

3. Transparency & Openness

We’re long past the days of affiliate marketers operating in the darkness. Brand safety and accountability are critical features of the future of performance marketing.

“CMOs need to know that their brands are safe and sound in the hands of their partners. That can happen only when partnerships are financially aligned, transparent, and communicative. For more scaled relationship management, marketers should use clearly articulated Terms and Conditions supplemented by technology-enabled enforcement to help protect their brands while they grow.”

– Brian Marcus, Global VP of Marketing, TUNE

4. Alignment of Incentives

If performance marketers are simply incentivized to provide traffic, leads, or other top-of-funnel inputs, they will do exactly that. But if they are incentivized to drive actions that result in provable ROI — and can be properly measured to do so — then incentives are aligned between partners and brands.

“Being able to drive performance partnerships in more channels and then evaluate and optimize them for true results will effectively align incentives.”

– Lucas Brown, Co-Founder of TUNE; founding architect of HasOffers

5. Owned Platforms

When brands own their platforms, they set the rules. That enables transparency, alignment, and fraud protection. It also ensures that brands don’t pay more than they need to for services rendered.

“Too many companies are paying their marketing partners for inputs when they should be paying for outputs. Performance Partnerships has become the go-to model for growing a brand as it ensures your marketing dollars are being spent in ways that are more transparent, authentic and performance-based.”

– Robert Glazer, Founder & CEO at Acceleration Partners

Read More

To learn more, download the first chapter of Robert Glazer’s book “Performance Partnerships: The Checkered Past, Changing Present, & Exciting Future of Affiliate Marketing.”

Data used in this report

TUNE surveyed 2,274 performance marketers in the U.S. and U.K. in March and April of 2018, including 400 in the U.K. and 1,874 in the U.S. Of all respondents, 82% are under the age of 44, 54% are women, and 46% are men.

Author

TUNE helps performance marketers and advertising partners maximize their ROI through powerful measurement and partner management solutions. Our mobile and performance marketing solutions are trusted by the world’s biggest brands, ad networks, and ad platforms to tie marketing investments to measurable outcomes. Headquartered in Seattle, Washington with hundreds of employees in nine offices worldwide, TUNE solutions are used by Expedia, CVS, Subway, The New York Times, Line Corporation and more. For more information, contact Mike Merwin at press@tune.com.