Pay-for-performance marketing, in which online advertisers pay a commission to Web publishing affiliates for generating online sales and leads, may be the one bright spot in an otherwise bleak online advertising market.
On Oct. 21âthe same day the Interactive Advertising Bureau released a report in New York showing that online ad revenue dropped 20.8% in the first half of 2002âonline marketers, publishers and agency execs on the West Coast were hearing about successful performance marketing results at a conference hosted by Commission Junction Inc., Santa Barbara, Calif.
Commission Junction is an online ad network of more than 100,000 Web sites, with about 1,200 advertising clients, including Hewlett-Packard Co., Microsoft Corp. and Discover Card.
The company acts as a rep firm, placing online ads and offers from its advertising clients across its network of sites, which are targeted at specific audiences. If an offer results in a purchase or lead, Commission Junction and the affiliate sites receive a fee.
Model pays off
The model seems to be paying off. Commission Junction is a private company and does not disclose financial results, but President Jeff Pullen said the business is showing double-digit year-over-year growth (based on third-quarter revenues for this year).
"Our core competency is tracking and reporting, and being able to show return on investment for online campaigns," Pullen said.
Performance-based deals now make up 15% of total online ad revenues, according to a recent report from the IAB.
Rudy Grahn, senior analyst at Jupiter Research, said the pay-for-performance model may have its limits for b-to-b marketing. "The number of sites that can produce qualified b-to-b leads on any scale is probably pretty small," Grahn said. However, he added, "For an advertiser, there is really very little risk. Theyâre only paying when they receive something of value."
At the California conference, which attracted about 170 attendees, Commission Junction unveiled plans for a new product, which will roll out later this month. Currently, the company offers a software service called Access, which provides advertiser and publisher management, ad tracking and reporting. The new product will give advertisers an opportunity to perform and track multiple actions, including sales leads, registrations, clicks and impressions.
Patricia Towson, account manager of Internet marketing at First USA, a Bank One company, has used Commission Junction for an introductory campaign for her companyâs consumer credit card. "Weâre at the beginning of a growth stage, and have had good results [with performance marketing]," she said.
Now, First USA is planning to roll out a performance-based campaign for its business card using Commission Junction, Towson said.
In developing successful performance-based campaigns, Towson said, itâs important for the advertiser to leverage relationships with strong publishing partners. To give its publishing partners incentives to promote First USA offers, the bank has created co-branded cards with partners such as United Airlines, Philips Electronics and Buy.com.
Successes and challenges
Tom Henell, VP-performance marketing at media agency Carat Interactive, Boston, noted that performance marketing faces a challenge in the b-to-b space. "The challenge is to convince companies to understand the value of acquiring leads [through a pay-for-performance online offer]," Henell said.
Carat currently uses Commission Junction for consumer client Jenny Craig and MarketFacts, a consumer market research company.
"For b-to-b clients, we can successfully deliver low-cost items or replenish goods very well [with performance-based marketing]," Henell said. However, he said, "Most b-to-b products are high-consideration purchases."
For high-consideration products, the pay-for-performance model works well in generating qualified leads, he said. Then, sales reps can follow up on leads to drive sales.
For client Xerox Corp., Carat is now using pay-for-performance company Be Free Inc. to market office supplies and replenishment products, such as toner.
Be Free offers pay-for-performance marketing similar to Commission Junction, although it does not operate a network of sites. Instead, it offers pay-for-performance technology, and advertisers deal on a one-to-one basis with publisher sites of their choosing.
"It gives us a little more brand control," Henell said. "Weâre not part of a network, and we only talk to people we want to solicit."