• by Will Martin-Gill , April 7, 2009

It's easy to look at the economy today and see nothing but negative indicators and closed doors. One can't escape reports of falling ad revenue, dwindling ad budgets and dying media companies. Even the outlook for online advertising -- once the industry's golden child -- has dimmed. But to the resourceful marketer, this recession still presents a number of important opportunities, not the least of which is affiliate marketing.

Perhaps one of the lesser-known and understood channels of advertising, affiliate marketing -- or paying online publishers to drive quality traffic to a company's Web site based on the purchases and revenue they help generate -- has quietly grown into a $6 billion+ industry. Jupiter Research expects affiliate marketing to grow another 13% year-over-year through 2012. By comparison, eMarketer anticipates online advertising in general will increase only 8.9% in 2009, to $25.7 billion, representing the lowest year-over-year increase for online advertising to date.

Why the bullish affiliate outlook? As the recession squeezes ad budgets and marketers respond to increased pressure to show return on investment, affiliate marketing is becoming more competitive with traditional channels of online and offline advertising. It's not just small hobbyists or up-start companies doing affiliate marketing these days. Instead, many larger websites -- from portals to content sites to product review sites and others -- are becoming affiliates of established online merchants.

The benefits driving this trend for both advertisers and publishers are compelling. Advertisers appreciate the results-oriented focus and high return. Publishers (affiliates) enjoy low barriers to entry and quick startup, with no need to enter into long negotiations over insertion-orders with prospective advertisers or put contracts in place the way one would with traditional CPM or CPC ads. In addition, many advertisers offer tools through their affiliate programs to help publishers deeply integrate advertising into a site -- from simple text links to customizable widgets to product feeds and APIs.

Affiliate marketing thus offers unique flexibility that makes advertising feel like content, providing an alternative to display or banner ads that might detract from the authenticity and appearance of the publisher site. Finally, affiliate marketing allows publishers of all sizes to compete on a level playing field -- good news considering publisher commoditization and the downward trends in CPMs.

The silver lining in these hard times is that the recession appears to be driving even more buyers online, as consumers not only attempt to save money by driving less, they spend more time researching trusted brands, reading reviews and comparison shopping. Online sales remains one of the few bright spots for retail, with domestic retail ecommerce sales expected to grow 11% this year, from $141.3 billion to $156.1 billion, according to Forrester's U.S. eCommerce Forecast.

That's good news for both sides of the affiliate equation -- merchants and the publishers and affiliates that promote them. Forrester expects the growth to continue during the next few years, albeit more slowly than in the past.

The real benefit: driving customer engagement

With ecommerce on the upswing and more customers than ever online, it's important to maximize their time there -- and this is where affiliate marketing can really outperform traditional advertising. As online advertising and consumers' Web habits evolve, advertisers will be looking more closely at engagement and conversion. The direct relationship between affiliates and advertisers paves the way for increased customer involvement and activity on the merchant site.

Let me explain: While traditionally the ad industry has attempted to solve inefficiencies by adding middlemen, such as agencies, ad networks and exchanges, affiliate marketing does the opposite. It's the only medium that allows advertisers and publishers to work directly together. The two parties can connect to discuss data and review results, working in tandem to find more ways to draw customers in.

Unlike the one-way medium of traditional advertising, affiliates have the incentive and flexibility to get creative and determine which layouts, creatives, promotions and recommendations work best for the merchants it represents. This direct relationship is a win-win for merchants and affiliates - the more successful the campaign, the more revenue each will bring in.

However, marketers must approach affiliate marketing with a clear understanding -- like any other worthwhile advertising medium, one can't simply assign bodies and budget to the program, back away and expect success. Instead, advertisers and affiliates must form highly productive relationships, keep communications open and work hard at making creative and targeting more effective. Look for more programs to pour resources into such efforts this year.

So to those dismayed at the news circulating about traditional advertising channels, take heart -- affiliate marketing can open doors even in a recession, as long as the advertiser and affiliate communities work together to engage customers, find efficiencies and drive results, building revenue for all parties.