Going Global
By: JOHN GARTNER
The move to expand into new geographic marrkets is filled with promise and lots of hurdles.
Affiliate Networks are striving to extend their reach by entering foreign markets, but local challenges threaten their chances of international stardom.
If the affiliate model is effective for selling necklaces in Nantucket, shouldn't it also work to move wurst in Wittenberg and mobiles in Manchester?
U.S.-based affiliate networks are hopeful that taking their business models to all four corners of the globe will translate into the same kind of success that they have enjoyed in North America. The networks see nations that have lagged behind the U.S. in embracing e-commerce as fertile ground for sowing the seed of performance marketing.
Commission Junction set down roots in the U.K. and Germany, while LinkShare put out its shingle in Japan. Both companies, as well as their European counterparts, have designs on extending their global footprint sooner rather than later. Commission Junction, LinkShare and Performics are the leading U.S. affiliate networks.
Going Gangbusters Globally
"My prediction for 2005 is that this will be the year that affiliate marketing truly goes global," says Heidi Messer, president and COO of LinkShare. Messer says the company "will be aggressive in expanding into Europe" and is interested in participating in the burgeoning economies of China, Korea and Australia.
LinkShare began its global odyssey three years ago, according to Messer, when it partnered with Mitsui & Company, a leading Japanese retailer. LinkShare provided the marketing platform while Mitsui contributed the business relationships and knowledge of the local requirements. "Going it alone wasn't a possibility," says Messer, because each country has its own buying pattern, laws and culture.
Messer says LinkShare is evaluating opening networks in European countries on an individual basis. "We are very methodical and will not enter markets where we are not 100 percent committed," she says.
The increasing willingness of Europeans to purchase goods and services online makes the region a likely destination for American marketers, according to Hellen Omwando, an analyst with Forrester Research's consumer markets group. Omwando says that within the first year of going online, 16 percent of Europeans now buy items such as travel and clothing, whereas in years past only 2 percent would have purchased commodity items such as CDs or books online in the first 12 months.
Omwando says that affiliates' potential audience is also growing – 55 percent of Europeans online now participate in ecommerce. "It's all good news from a consumer perspective," she says.
The United Kingdom and Germany are driving most of the growth in Europe and account for two-thirds of all e-commerce, according to Omwando. Not surprisingly, Commission Junction launched its first two European affiliate initiatives in those two countries.
"We are up to our eyeballs in international expansion," says Elizabeth Cholawsky, vice president of marketing and product development at Commission Junction. She adds that the company will next launch in France in mid-2005, and that Spain and Italy are also priorities for expansion.
By entering new markets, the company would be able to better serve its advertisers through an international network of websites, says Cholawsky. In addition to Europe, Commission Junction has launched eBay in India and Australia, and has China on its radar.
The most difficult aspect of Commission Junction's European launch was not technological or cultural, but bureaucratic, according to Cholawsky. She says that because European tax officials are not well-versed in the intricacies of e-commerce, the company hired auditing firm PricewaterhouseCoopers to work with government representatives in the U.K. and Germany. The European Union's adoption (with the exception of the U.K. and Switzerland) of the euro has simplified currency exchange.
The company hired a design firm from Germany and a language translation firm from Washington, D.C., to create a website acceptable to local affiliates, according to Cholawsky. She says launching in the U.K. first simplified establishing a presence in Germany. "Europe has more things in common than different," she says. "Culturally it's similar all around."
European expansion has contributed to Commission Junction's rapid growth. The company's revenue jumped from $24 million in 2003 to an estimated $54 million in 2004, says Cholawsky.
Affiliate network Performics is unlikely to join the European fray this year, according to Chris Henger, senior vice president. He says Performics is focusing on integrating its resources with new parent company DoubleClick. "In the longer term you could see us moving in that direction, but it's not an immediate strategy," Henger says.
Navigating the Potholes
Ashley Friedlein, CEO of London-based E-Consultancy.com, says that incumbent local companies have the upper hand over Americans in attracting retailers. "European merchants want to deal with companies who understand their markets," he says.
Citizens of each country have their own preferred methods of purchase, revenue model, topselling products and legal requirements, according to Friedlein. Europeans are much more likely to purchase products through their mobile phones, and the laws for online data protection and privacy protections vary from country to country, he says.
European e-commerce trends run about six to 10 months behind the U.S., Friedlein says. And European affiliates continue to use the pay-per-click revenue model that Americans have largely moved beyond, according to Friedlein. Search engine marketing in Europe requires local expertise, especially for American companies used to operating in a Googlecentric universe.
Europeans have their own searchengine marketing techniques, and affiliates and merchants are working out how to cooperate with search partners, according to Friedlein. He says that affiliates and retailers have been in a bidding war over getting priority for brand names in search engine rankings. "It's a bone of contention," he says.
One similarity with American affiliate marketing is that merchants depend on a few affiliates for most of their revenues. "I reckon that 90 percent of sales come from 10 percent of affiliates," Friedlein says.
Affiliate marketing's rapid growth in Europe has made it difficult for retailers to find in-house expertise to manage their programs, according to Friedlein. Many large retailers do not have a dedicated affiliate manager, so the responsibility is either part of the marketer's job, or it's outsourced.
European sales generated through affiliates during 2004 are estimated at $1.1 billion, a 100 percent increase over the previous year, Friedlein says, and he expects similar growth this year. Friedlein says 3.5 percent of all e-commerce sales in Europe are generated by affiliates.
Forrester's Omwando warns that while affiliate marketing in Europe is in a comparatively early stage of development, Americans looking to land on the Continent in 2005 may have a hard time forging relationships. Europe already has three significant networks in place: Zanox in Germany; TradeDoubler, which has operations in 16 nations; and Commission Junction, which began its U.K. operation in 2001.
She says retailers unfamiliar with affiliate marketing are unlikely to partner with a foreign entity. "Marketing at the end of the day is very localized, and anyone participating has to understand the nuances and cultural sensitivities," Omwando says.
For example, to work with German companies, networks must first establish relationships with the local trade associations, Omwando says.
"I really don't see what the opportunity is for American companies," she says. Continued on Page 2...
Tags:
global affilate markets, affiliate networks,
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