The evolution of the affiliate channel

It’s official, the online gaming industry is growing up, and with it so too is the approach operators are applying to their acquisition strategies.

In the last five years we’ve seen the affiliate sector soar with CPAs and lifetime revenue shares reaching eye watering levels. This was driven by numerous factors, not least the ‘Gold Rush’ mentality of smaller white label operators or network skins where the affiliate channel often represented the sum total of both their investment, and strategy for acquisition. However, in the last 18 months we’ve started to see the balance of power move back to the larger operators and I fully anticipate seeing this trend continue in 2011.

As head of acquisition channels at Sportingbet my role is to acquire as many profitable customers as possible across all our products and territories. In order to achieve this I’m continually analysing the relative effectiveness of each of our acquisition channels and adjusting the acquisition ‘levers’ and strategies accordingly. Forward thinking affiliates should consider their relationships with operators, not simply in terms of what percentage they earn and the threat of competition from other affiliates, but as part of an operator’s integrated acquisition strategy. Increasingly the affiliate channel is in direct competition with other acquisition channels such as display media, TV, sponsorship, PR, and search.

The reality is that if any one channel becomes significantly less profitable than another, operators will take action to reduce the costs, and or contribution, of that channel to their overall acquisition strategy. Changes to affiliate program terms and conditions are always heralded as a cheap trick by operators to rip off their affiliate partners. While this has no doubt occurred in certain instances, in reality it is likely that it often has far more to do with the need or desire to reduce the total cost of the channel in order to preserve its place within the business’s overall acquisition strategy.

I have had the pleasure of working with many fantastic affiliates over the years and one thing is for certain, those affiliates who adopt a partnership approach, being realistic in the negotiations and appreciating the value of the operator relationship will be the long term winners. Affiliate managers aren’t going to go to bat for an affiliate who continues to drive up their revenue share without increasing benefit to the operator. Likewise, operators are willing to support high performing partners who continually work to develop the relationship and understand the importance of finding a balance in the commercial terms.

The reality is that in the future affiliates are going to receive less value per player than in years gone by. This is not a new model, you only have to look at other online sectors such as retail and travel to see how the natural evolution of a sector has a very specific effect on the contribution and dynamics of the affiliate channel. As operators become more sophisticated in their approach to all areas of acquisition, particularly search, more focus falls on the relative cost of acquiring players via each channel. Combined with the required increase of marketing spend to build and maintain market share in a more competitive environment, this means that something has to give.

There are many examples of affiliates who have long understood this evolution and who have built up strong, mutually beneficial relationships with operators that will stand them in good stead for the changes that are undoubtedly coming. It would be unfair to name names, but looking through the affiliate Power 50 it is not by coincidence that many of these companies fall into the category I have been describing.