Affiliate marketing has been around almost as long as the internet itself. Amazon launched its Associates program all the way back in 1996. This was followed by the advent of affiliate networks like Commission Junction and Clickbank, which created platforms for smaller brands to connect with publishers. The idea behind affiliate marketing is simple–brands offer a percentage-based commission on sales made through customer referrals from the publisher’s site to the brand’s online shop.
In recent years, the passive income potential of affiliate marketing has been popularized by credible e-marketing gurus such as Pat Flynn. This has attracted many people to start their own niche websites aimed at making affiliate sales.
Today, affiliate marketing remains an extremely popular form of digital advertising among brands and publishers alike–more than 80% of each demographic utilized affiliate marketing in 2016. For publishers, it offers more lucrative earning potential than display ads. For brands, it is strictly performance based, rewarding only successful sales. This is in contrast to many other forms of online advertising, in which brands are paying for clicks rather than sales.
Due to its popularity, affiliate advertising is thought to drive around 10% of global e-commerce sales. Yet the $13 billion value of the affiliate marketing industry represents only 5% of the overall spend on digital marketing. How can that be?
The current state of affiliate marketing
Despite its popularity, affiliate marketing comes with problems. Many of these problems can be attributed to the use of affiliate networks, or dishonest practices by either merchants or publishers. Issues include:
- Fees: Affiliate networks impose service fees of around 10-25% on commissions earned. This cuts into merchant advertising spend and publisher earning potential.
- Inaccurate tracking/attribution of sales: The software used to track sales can be flawed and may not always correctly attribute sales (e.g. if a buyer is using different devices).
- Slow and complicated payment processes: Publishers are often left waiting weeks or months for payment.
- Unscrupulous merchants: Merchants may dispute, or under-report sales generated by a publisher, and there is little transparency or auditability that allows such disputes to be fairly resolved.
- Unscrupulous publishers: Publishers may use a tactic called “cookie spamming” to generate clicks on their links, including false advertising or forced clicks.
- Lack of direct connection between merchant and publisher using affiliate networks: This means there is no means to create additional value within the relationship by working together on topics such as ad placement.
A number of savvy startups such as Hoqu or RefToken have already recognized that blockchain provides a solution to a number of these problems. Blockchain has proven its ability to enable peer-to-peer transactions in a number of sectors, so it can also be applied to render the intermediary role of the affiliate network obsolete. Eliminating the intermediary also reduces or eliminates the service fees it charges.
By implementing blockchain technology, payments can be made more quickly, in real-time if so desired. Most of all, the blockchain offers transparency for both merchant and publisher to track and trace transactions. The immutability of blockchain means that transactions cannot be tampered with, reducing instances of fraud or mis-reporting.
However, most blockchain-based affiliate networks are built using existing blockchains–mainly Ethereum. One of the well-documented problems that the Ethereum team is still working to solve is transaction speed. Of course, Ethereum-based affiliate networks can only work at the same speed as Ethereum itself. Therefore, speed issues prevent them from being able to trace every single click that customers make, regardless of whether that click ultimately ends with a sale. However, there is one blockchain affiliate network which is building its own platform to do just that–Attrace.
The Attrace platform is being developed on a custom blockchain, using Golang by Google. Such a custom solution means that the Attrace network is the first ever of its kind that will focus on tracking clicks made on affiliate links. This is as opposed to tracking sales made only once a link is clicked, which is the current focus of both the traditional and Ethereum-based affiliate networks. By shifting the focus to tracking clicks, Attrace believes it can solve the main problem inherent in today’s affiliate marketing model–that of trust and transparency in the tracking and attribution of sales.
Attrace is able to track clicks by generating a smart contract with each click on an affiliate link. This smart contract will then register any subsequent sale from that click onto the blockchain. The smart contract can also execute and record the payment transaction, allowing the publisher to receive their commission much quicker than they could today using traditional affiliate networks.
Attrace is aiming to completely eliminate the need for traditional affiliate networks using this model. Their white paper outlines how they will be able to reduce the fees paid on commissions by around 95% compared to what is currently paid by merchants and publishers. The user interface will be designed in a way that is familiar to publishers and merchants, based on current affiliate networks. Attrace expects high user adoption given that they will pay out commission in fiat currency–a move that puts it even further ahead of the existing competition.
Attrace is based in the Netherlands, with a team that has extensive experience in affiliate marketing. The company will launch its presale in June and is targeting a go-live of its first release of the merchant and publisher dashboard in Q4 2018.