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Inside the Multi-Billion-Dollar Online Product Recommendation Economy

Publishers from Buzzfeed to Vogue to CNN are generating a growing amount of revenue from product reviews that steer readers to retailers’ websites. Behind the scenes, brands are locked in a battle to claim the most-coveted links.
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By
  • Chantal Fernandez
BoF PROFESSIONAL

NEW YORK, United States — Veja sneakers are the trending shoe of the moment, thanks to their environmentally friendly reputation and celebrity fans like Emma Watson and Meghan Markle. But with a dozen different styles on the market, which one to choose? Editors at The Strategist, New York Magazine's online shopping vertical, recently recommended six styles, helpfully providing links to Net-a-Porter and other retailers.

A reader who clicked the link and bought a pair — the minimalist Esplar suede-trimmed sneakers, perhaps — unknowingly contributed to the internet’s recommendation economy. Behind the scenes, retailers and brands from Amazon to independent retailers, are duking it out for the right to own affiliate shopping links, the URLs that steer readers from product reviews to e-commerce sites.

These links, which are deployed from Buzzfeed to Vogue to CNN as well as by untold numbers of individuals on social media, generate billions of dollars in commissions each year and have spawned a vast ecosystem of retail networks, marketers and other service providers. They are heralded as a lifeline for the beleaguered publishing industry and vilified as another way for Amazon to extend its stranglehold over online shopping.

“The smart advertisers are looking at [affiliate] and thinking, ‘This is the biggest opportunity in advertising for us,’” said Hanan Maayan, co-founder of Trackonomics, a company that provides publishers and marketers a platform to manage all of their affiliate network relationships.

The more volume of business we send through the network, the more leverage we have

In the case of the Veja sneaker, a purchase would likely have been split five ways or more: Veja and Net-a-Porter would receive the largest shares, followed by the publisher, which typically receives a cut of under 10 percent, according to industry estimates, though its share can range as high as 30 percent. Skimlinks, a platform that manages affiliate relationships, takes part of its commission. Net-a-Porter also pays technology company Rakuten Marketing to track where sales originate.

These small percentages add up. In 2016, the most recent estimate available, affiliate marketing generated $4.78 billion in the US alone, making up 7.5 percent of total spending on digital advertising, according to eMarketer. In the UK, affiliate marketing spend grew 15 percent to £554 million ($706 million) in 2017, according to a study from the trade organisation The Internet Advertising Bureau.

This year, New York Magazine expects to generate revenue in the eight-figures from affiliate links, with revenue doubling every month, year-over-year, in 2019. The publisher, which launched The Strategist in 2016, is hardly alone. Buzzfeed, Bustle, Hearst and Condé Nast all make money from affiliate links. Even CNN is in on the action, launching Underscored, an online shopping guide in 2017.

But retailers and publishers are on a collision course. Media organisations are struggling to replace dwindling advertising revenue, and are pushing for higher commissions. Retailers and brands are resistant, seeing affiliate links as a cheaper alternative to an advertising market dominated by Facebook and Google.

Looming over both sides is Amazon, the world’s largest online store. The marketplace came to affiliate marketing early with its Associates program in 1996, and now relies on links spread across the web to steer customers to specific items in its famously difficult-to-browse catalogue. Industry experts say Amazon likely generates more revenue from affiliate links than all other retailers combined. Some 650 million people visit the site based on publisher recommendations each month, according to Digiday.

The core problem is that there are so many random players in the space

The marketplace has some key advantages: it sells a huge variety of items, often at lower prices than competing retailers. It also shares data with publishers about the products it sells. Amazon is even considering funding publishers’ international expansions in order to generate more reviews abroad, according to Recode. Amazon declined to comment.

If a website wants to recommend a product not sold on Amazon, it typically creates links through one of a number of affiliate networks which track sales for retailers. There are as many as 85 of these networks, with Rakuten, Impact Radius, CJ Affiliate, ShareASale, Pepperjam, Tradedoubler and Webgains among the most well known.

New York Magazine is one of Amazon's preferred publishers, meaning it likely receives a better commission than most — regular associates receive 10 percent for luxury beauty products and 4 percent for apparel and accessories. (The company declined to comment on its relationship with Amazon, or any other retailers.) It also works with about a dozen affiliate networks, though measuring the success of that business on a day-to-day basis is more complicated.

“We are getting data feeds from each of them — it’s apples and oranges, so the data normalisation process is extremely challenging,” said Camilla Cho, the publisher’s general manager of e-commerce. “The more volume of business we send through the network, the more leverage we have.”

The publisher sometimes uses Skimlinks to determine which retailer’s links will earn them the highest commission. It also works with Narrativ, a start-up that allows retailers to bid on recommendation links from websites after they are published, rewriting them to the winning retailer's product.

The goal is to give retailers more clout to compete with Amazon, said Narrativ founder Shirley Chen. The company came out of stealth mode in August 2017 and now works with more than 50 publishers and bloggers, with plans to expand this year to more partners.

“[Editor recommendations] are a new type of storefront,” she said. “The core problem is that there are so many random players in the space …. There’s a ton of technology that you actually need to build to be able to facilitate this kind of change.”

Influencers face their own challenges.

Rewardstyle, a network and monetisation platform for influencers, started building LiketoKnowIt, now the company’s shopping app, in 2014 as a way to allow influencers to connect their outfit images on Instagram to shoppable links via email. Instagram shut that function down as part of wider limits placed on third-party apps last year. Today, LiketoKnowIt still connects followers to shoppable links: when users take screenshots of an influencer on Instagram, the app recognises the image if the influencer posted it on the app, too, and saves the links to the user's account.

Instagram doesn’t allow links in captions, so connecting product recommendations to sales is difficult. The Facebook-owned platform is developing its own shopping tags under a service called Checkout, but has limited it so far to under 100 brands and influencers, all based in the US.

Christine Andrew, an influencer who blogs at Hello Fashion, said LiketoKnowIt was a huge revenue driver for her before Instagram shut down a function that sent users an email whenever they liked one of her pictures. But she’s seen it start to grow again now that users are becoming more accustomed to opening the app to see her outfit credits there, or heading to her blog.

It was very difficult to scale the network relationships

However, since her audience has grown in recent years (she now has 1 million followers on Instagram), brand partnerships are more lucrative for her now. These collaborations account for half of the revenue generated by Rewardstyle's network of influencers, said Founder and President Amber Venz Box. The company also manages campaigns for advertisers, among functions to support influencers' revenue-generating publishing projects. 

Rewardstyle rival Shopstyle also curates influencer campaigns for advertisers from its network. Rakuten subsidiary Ebates (a coupon affiliate marketing platform) acquired Shopstyle in 2017, so it is now connected to Rakuten Marketing, the affiliate marketing network that works with Net-a-Porter, Nordstrom, Walmart and many others.

Amazon also launched an influencer version of its Associates program in 2018, which gives influencers a page on the site in order to make it easier to direct traffic to Amazon when individual product links aren’t possible, like in an Instagram caption.

Trackonomics’ Maayan said the complexities of dealing with multiple networks is one of the main drawbacks of the industry.

“It was very difficult to scale the network relationships,” he said. “There is enough interest and enough money now. At the core of the affiliate marketing, there is still that premise which is that you pay for results.”

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