This article written by Sarah Rothrie was originally published at CoinCentral.
Blockchain affiliate marketing platforms are some of the latest to exploit new technology to solve old problems. More than 80% of online brands and publishers now use affiliate marketing, and yet it accounts for only 5% of the spend on digital marketing globally. Why would this be the case?
Well, like so many other industries, affiliate marketing is dependent on intermediaries. In this case, the middlemen are the affiliate networks. However, there are now several companies releasing blockchain affiliate marketing platforms that do what blockchain does so well. It will eliminate the middleman – and the fees that they take for their service.
What Is Affiliate Marketing?
For the uninitiated, affiliate marketing is a way for brands to promote their products online. How it works is that a website (the publisher) will put a link on their site promoting a particular product or service from a brand (the merchant). When a customer clicks on that link and makes a purchase, the publisher gets a commission from the sale.
It’s popular because it creates a win-win scenario for merchants and publishers alike. The merchant is paying out commission only based on sales performance, unlike many other kinds of advertising. Once the links are set up, the publisher can earn passive income from their website.
Some very well-known sites started off life in this way – take Skyscanner for example. The high-profile success of many affiliate marketers is another way that gig-economy millennials can try to generate some side income.
What Is an Affiliate Network?
For a brand to launch an affiliate program at any scale, it must create a means for publishers to install tracking cookies and have a secure login area independently of the online shop for publishers to track sales. All of this creates barriers to entry for merchants. Enter the middleman – the affiliate network. CJ Affiliate and Clickbank are two of the biggest.
These big players aggregate both publishers and merchants to connect them to one another, in the same way, that Uber connects a rider with a driver. For the provision of this service, the affiliate networks generally charge between 10% and 25% of the commission paid. It’s a pretty payment for what is a mostly passive service. Given that affiliate publishers are also dependent on services such as PayPal to receive their earnings, what they earn at the end can be subject to even costlier deductions.
One of the best-known use cases for blockchain is to eliminate the need for a middleman – in the case of Bitcoin, it removes the need for a bank or clearing house. In the case of affiliate marketing, some savvy startups are now seeing that it can eliminate the need for the affiliate network.
How Do Blockchain Affiliate Marketing Networks Operate?
There are several new players in the market, and each of them has a slightly different model in place. However, smart contracts are the standard feature. In the case of Ethereum-based platforms Hoquand RefToken, blockchain creates smart contracts automatically upon the generation of a lead or sale. One new player, Attrace, is developing a custom blockchain that will generate a smart contract each time a user clicks an affiliate link.
Smart contracts will also be able to govern the terms of the affiliate sales agreement between publisher and merchant. So, for example, the percentage or amount of affiliate commission to be paid, and perhaps the timing of the payment, are controlled by the smart contract.
The smart contract will be able to automatically attribute the sale, and execute the payment of the affiliate earnings by deducting digital funds from the merchant and paying over to the publisher. The commission can be paid in cryptocurrency. Or in the case of Attrace; it plans to offer an option for receiving earnings in fiat currency. Payouts in fiat would potentially lower the barriers to using such a blockchain affiliate marketing network for publishers who have not yet adopted cryptocurrencies.
Why Make the Switch to Blockchain Affiliate Marketing Solutions?
All of the blockchain affiliate marketing networks can promote themselves on a substantial reduction in fees over the traditional affiliate networks – in some cases as much as 95%.
However, there are other issues that blockchain-based solutions can solve in addition to saving fees.
Reduce Fraud and Disputes: One of the most reported issues from both merchants and publishers. Publishers complain that their sales may be under-reported, and their earnings withheld. Blockchain provides a permanent record of transactions. A record like this means less likelihood of disputes over whether a sale was successful. Particularly if click-tracking becomes the norm, this will significantly increase transparency. Merchants and publishers can see which clicks resulted in both sales and non-sales.
Speed: Currently, it can take weeks or sometimes even months for publishers to receive their payments. In some cases, it takes as long for sales to even register on the affiliate network platform. It is also common for affiliate networks to impose minimum payment thresholds. Therefore, publishers can wait a long time to get paid. Blockchain allows payment to be made in real time, or the payment schedule can be automated with smart contracts.
Increased Value Creation Between Merchant and Publisher: The traditional affiliate networks stand between publisher and merchant. This means that the two parties never have the opportunity for a direct discussion about creating more value in the relationship. For example, transparency of which kind of links or ads perform best, or how best to market new products.
Even if a publisher is the number one best source of sales for a particular merchant, they have no opportunity to differentiate as the affiliate network sits between and can mask the value offered by different publishers. For example, one publisher may generate a small number of lifetime customers that may be worth more for the client than a more substantial volume of one-time clients.
Decrease Barriers to Entry for Smaller Merchants: The traditional affiliate networks care about generating commission. So they usually demand that merchants pay a minimum threshold to qualify for their platforms. Blockchain-based services can afford to operate without imposing such limits.
These new players entering the blockchain affiliate network game clearly believe that this is an industry with much potential. In addition to innovative content marketing solutions like Steem, there are still new ways that blockchain can enhance existing content marketplaces.