Performance marketing study

The value of UK Online Performance Marketing January 2013

Agenda

1. Introduction

2. Methodology

3. Headline results

4. Detailed analysis

5. Summary

The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

Report made possible because of the financial contributions of…

Company Logo Website

IAB http://www.iabuk.net/

A4U http://www.affiliates4u.com/

AdPepper http://www.adpepper.co.uk/

Affiliate Window http://uk.affiliatewindow.com/homepage/about-us/

Affilinet http://www.affili.net

BSkyB http://www.sky.com/shop

Commission Junction http://uk.cj.com/

Debenhams http://www.debenhams.com/

Forward Internet Group http://www.forward.co.uk

GOALLOVER http://www.lolagrove.com/

LBi http://www.lbi.com/uk/

Mindshare Magnetise Group

http://www.mindshareworld.com/ http://www.magnetisegroup.com/


http://www.iabuk.net/

http://www.affiliates4u.com/

http://www.adpepper.co.uk/

http://uk.affiliatewindow.com/homepage/about-us/



http://www.affili.net/

http://www.sky.com/shop

http://uk.cj.com/

http://www.debenhams.com/

http://www.forward.co.uk/

http://www.lolagrove.com/

http://www.lbi.com/uk/

http://www.mindshareworld.com/

http://www.magnetisegroup.com/

Report made possible because of the financial contributions of…

Company Logo Website

Nectar http://www.nectar.com/eshops

OMG http://www.omgpm.com

Rakuten LinkShare http://www.linkshare.co.uk/

Red Letter Days http://www.redletterdays.co.uk/Home

R.O.EYE http://www.roeye.com/

Savoo.co.uk http://www.savoo.co.uk/

Tradedoubler http://www.tradedoubler.com/

TTH Media http://tenthousandhours.co.uk/

Unanimis Consulting Ltd http://www.unanimis.co.uk/

VoucherCodes.co.uk http://www.vouchercodes.co.uk/

WebGains http://www.webgains.com/public/


http://www.nectar.com/eshops

http://www.omgpm.com/

http://www.linkshare.co.uk/

http://www.redletterdays.co.uk/Home

http://www.roeye.com/

http://www.savoo.co.uk/

http://www.tradedoubler.com/

http://tenthousandhours.co.uk/

http://www.unanimis.co.uk/

http://www.vouchercodes.co.uk/

http://www.webgains.com/public/

1. Introduction


Background

• Existing IAB / PwC Digital Adspend Report captures above the line advertising spend

→ Affiliate Display £85 million

→ Affiliate Search £38 million

→ Lead Generation £51 million

• Does not represent full range of Online Performance Marketing revenues

→ Sales Commission generated

→ Set up, management and consultancy fees

→ Technology and data costs

• Sales generated by advertisers not included


Background

• IAB wanted to accurately represent size and value of the Online Performance Marketing sector to include

→ Full range of advertiser spend (e.g. sales commission, and management fees)

→ Advertiser sales generated and ROI

• Work closely with the Affiliate and Lead Generation Councils

• Commission PwC to create new study


Traditional affiliate network model

• The user clicks on an advertisement or product on the publisher website

• The user is then re-directed to the advertiser website to complete the transaction

• A cookie is placed on the users web browser by the affiliate network to record sale origination

• Affiliate networks are most commonly deployed when the advertiser establishes relationships with a large number of publishers, and accurate sales records need to be maintained

• Following completion of the sale, the advertiser will then pay an agreed commission to the publisher (typically a fixed fee or a % of basket value)

• The affiliate network will also receive a fee for facilitating the process

• An agency may also receive a fee if managing the advertiser’s media campaign

Advertiser

(Agency)

Affiliate Network

Publisher Publisher Publisher Publisher

£

£

This could be 10s, 100s or 1000s of publishers Transaction or application

process typically completed online (e.g. via

a ‘checkout’)

Note: terminology varies across the Online Performance Marketing industry. ‘Advertiser’ is used interchangeably with 'Merchant' and 'Retailer'. Similarly, 'Publisher' is used interchangeably with 'Affiliate' and 'Content Owner‘. In general, we have used the terms ‘Advertiser’ and ‘Publisher’ in this report


Traditional Lead Generation Model

Advertiser

(Agency)

Lead Generation Company

Publisher Publisher Publisher

Lead Capture Form

Lead Capture Form

Lead Capture Form

£

£

Typically between 20-150 publishers

• The user clicks on or views an advertisement or product on the publisher website. They are invited to complete an enquiry form or provide contact details (e.g. to sign up for a newsletter, to request a test drive, to see a quote)

• Lead Gen companies are most commonly involved when the user is purchasing a complex product where professional advice is required (e.g. life insurance, a new kitchen). Lead Gen companies are engaged when advertisers seek new leads in addition to those gathered through its own website or CRM database

• Following delivery of the lead, the advertiser will then pay an agreed commission to the publisher (typically a fixed fee)

• The lead generation specialist will also receive a fee for facilitating the process

• An agency may also receive a fee if managing the advertiser’s media campaign

Transaction or application process typically completed

offline (e.g. via a call centre or broker)

Lead captured and passed on


2. Methodology


Definition of Online Performance Marketing (1)

A form of online advertising that differs from traditional online display advertising, as payment is triggered by an outcome (e.g. a

user initiated action such as a purchase or submitting contact details)

Affiliate Marketing:

In the affiliate model, users will typically click an advertisement and

be re-directed to the advertiser’s website to complete the transaction, following which a fee is paid to the

content owners once the transactionis completed

Lead Generation:

In the lead generation model, users will typically enter their details (e.g. into a lead capture form) which are

then passed onto the advertiser, following which a fee is paid to the

content owners (payment is on a per enquiry basis)

Definition:

2 principal forms:


Definition of Online Performance Marketing (2)

• Online Performance Marketing represents part but not all of the online advertising and commerce chain

• Content owners are often remunerated on a cost per action (CPA) basis or a cost per lead (CPL) basis

• In some instances, content owners are remunerated on a cost per click (CPC) basis

CPM(cost per

thousand)

CPC (cost per

click)

CPA(cost per

action)

CPL(cost per

lead)

Increasing value

•Brand/Awareness building

•Unregistered

•View/ Click

•Unqualified

•Browsing

• Implicit

•Reach

•Action/Intention focused

•Registered

• Lead/ Purchase

•Qualified

•Researching

•Explicit

•Targeted

Increasing volume

Online Performance Marketing

()

Partially included in OPM

()

Included in OPM

Not included in OPM

Key:


UK Online Performance Market eco-system

Media Agency

Tracking/ technology platform

Affiliate Network

Lead Generation

Data services (processing, analytics, verification and presentation)

ILLUSTRATIVE ONLY. NOT EXHAUSTIVE

Advertisers Publishers

Specialist Online Performance Marketing Agency

Email Marketing

Ad networks Aggregators

Other publisher solutions

Note: companies may act as a ‘publisher’ and as an ‘advertiser’, or work across multiple segments of the value chain, e.g. operating as an ad network, lead generation and data services provider


The new study in context

IAB/PwC bi-annual Digital Adspend

data

New Online Performance

Marketing Study

Key differences:

• More participants are included from the wider Online Performance Marketing industry in this market sizing exercise

• We are capturing total spend, not just media space ‘adspend’, i.e. including commission on sales generated, technology spend, set-up fees, consultancy fees, data cleansing

• We have undertaken additional modelling of non-survey participants in the Online Performance Marketing space (based on publicly available financial data, market interviews and desk research)

• This survey gathers more granular data to better understand underlying trends and dynamics of the Online Performance Marketing industry

• In addition, this survey also seeks to capture the value of sales generated by Online Performance Marketing and its value to the UK economy


Methodology overview

37%

63%

47%

53%

Advertiser sales generated by Online Performance Marketing

Survey data

Estimated

Online Performance Marketing expenditure by advertisers

For future surveys:

• We will welcome feedback on the methodology and data collected in this survey

• Increased participation from across the industry in the survey, increasing the granularity of response and historic trend data

Survey data

Estimated


37%

63%

47%

53%

Advertiser sales generated by Online Performance Marketing

Survey data

Estimated


Survey data

Estimated

Survey methodology

• Our current survey is based on 27 detailed submissions from 23 companies

→ Two types of submission forms: Affiliate Marketing and Lead Generation

→ Some companies provided both Affiliate Marketing and Lead Generation submissions

• Survey captures revenue from major players in the OPM market, who represent 1000s of publisher websites

• Figures are adjusted for double counting, based on information provided by survey participants

• Historic growth trends are presented on a like for like basis, i.e. based on companies submitting in both years

• The figures are drawn up on the basis of company declarations and have not been verified by PwC


Methodology for estimating advertiser spend

ILLUSTRATIVE ONLY

Bottom-up market sizing exercise based on revenue

submissions from a significant proportion of key players in

the affiliate marketing and lead generation space

PwC survey

data

Market size

estimate

Major price

comparison

sites

Large in-house

affiliate

programme

B2B Lead

Gen

£Xm

Lead Gen

Affiliate Marketing

Lead Gen

Affiliate Marketing

Gaming

sector

Other sectors/

players under-

represented

Incremental revenue not captured in PwC survey data

Estimation based on a combination of publicly available financial/

commercial data, PwC market interviews and leveraging insights from

the bi-annual PwC/IAB Digital Adspend study


Provides current

market size estimate

Provides historical and detailed trend

data


Methodology for estimating sales generated

ILLUSTRATIVE ONLYAdvertiser sales generated by Online Performance Marketing

Where sales

value known

Market size

estimate

Where sales

value not

known

Lead Gen

sales values

not known

Other PwC market estimates where sales

value not known

£Xm

Affiliate Marketing

Lead Gen

Affiliate MarketingOther

Affiliate Marketing

PwC survey data

Lead Gen

PwC estimate

Survey data refined based on

current 2012 commission

levels where sales value and

acquisition cost is known (by

specific sub-sector where

available)

High level extrapolation based

on market average commissions

(a combination of market

interviews, desk research and

PwC survey data has informed

this view)


Participants and support from

27 Detailed survey submissions from: Ad Pepper, Affiliate Window, Affilinet, Commission Junction, Goallover, Intela, IPT, LeadPoint, Magnetise, Mindshare, MVF Global, Nectar, Neo@Ogilvy, OMG, Performance Horizon Group, Quidco, Rakuten Linkshare, ROEye, Savoo, Ten Thousand Hours, Tradedoubler, ValueClick, WebGains

31 Interviews conducted with: 14 advertisers, 6 publishers, 3 media agencies, 7 survey participants and 1 independent market consultant

Additional support from: Affiliate Window, Commission Junction, Goallover, LeadPoint, Nectar, Neo@Ogilvy, Red Letter Days, Ten Thousand Hours


3. Headline results


3,000 – 4,000 advertisers spending

£814 million on

10,000 publisher websites Lead Generation

14%

Affiliate Marketing

86% The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

100 million

70 million

transactions

leads generated


generating

£9 billion sales

Lead Generation

£1 billion

Affiliate Marketing

£8 billion


Return on investment?

spent =

sales generated The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

Online Performance Marketing shows consistent growth

2008 2009 2010 2011 2012

Average Growth

12% per year (every year)


Sources/ Notes: 1. This figure is illustrative only. Calculated based on a combination of digital adspend (captured in the IAB/PwC Digital Adspend Study) and other digital

marketing spend (not captured in the IAB/PwC Digital Adspend Study). We have excluded technology and management/ set-up fees from our Online Performance Marketing market size

2. ‘The Connected Kingdom’ (Google/ BCG), ‘The internet Economy in the United Kingdom’ (Vodafone/ A.T.Kearney) 3. Assumed GDP of c.£1.4tn (IMF, Oct 2012) 4. Based on retail only sales in Online Performance Marketing compared to the UK retail ecommerce market value (Verdict Retail, 2012)

c.7-9% of UK digital marketing spend1

c.5-6% of UK retail ecommerce4

This is based on Retail only sales in Online Performance Marketing

c.6% of the UK internet economy2

c.0.6% of UK GDP3

The context of Online Performance Marketing


4. Detailed Analysis


Finance, 45%

Retail, 20%

Telecoms & Media, 10%

Travel & Leisure, 9%

Gaming, 6%

B2B, 5%

Energy & Utilities, 3%

Auto, 1%

Other, 1%

% of £814m total spend

*c.90% of Finance revenue relates to price comparison sites

Finance, Retail, Telecoms & Media and Travel & Leisure are key sectors


“Affiliates drive the highest value customers compared to other

channels like paid search, display and offline channels”

(Large advertiser)

“This year, Pay Per Lead campaigns have been the key focus of our

marketing investment” (Large advertiser)

“Affiliates are now 25% of all online sales, having been around

12% five years ago” (Small advertiser) “It helps us target customers that

our other campaigns do not reach”

(Small advertiser)

“42% of our digital adspend is CPA” (Large advertiser)

What do advertisers say about Online Performance Marketing?


100 105

127 143 150 100

127 147

180

240

0

50

100

150

200

250

300

2008 2009 2010 2011 2012*Affiliate marketing Lead generation

Gro

wth

Inde

x vs

200

8 (1

00)

Between 2008 and 2012, OPM grew by 57%, due to affiliate marketing increasing by 50% and lead generation by 136%

*Note: The following graphs relate to the PwC survey results only, and hence can only be used indicatively as growth rates and trends in the overall market. In this, and all following PwC survey graphs, 1H 2012 refers to actual figures and 2H 2012 is based on budgets/ outturn forecasts provided by participants during October/November. The split between Affiliate Marketing and Lead Generation is based on the split provided in company submission data, and not necessarily allocated based on payment model splits between CPA and CPL

Measured spend has grown significantly since 2008


CPA, 86%

CPL, 12%

CPM, 1% Other, 1%

Payment model (H1 2012) Includes CPC, CPP (Cost per call) and fixed fee (PwC survey data does not provide comprehensive coverage of major price comparison sites, and as such CPC is likely to be under-represented in this analysis)

Cost Per Action is the dominant payment model


Variable sales

commission, 74%

Fixed sales commission, 16%

Tenancy deals & content sponsorship,

4%

Management fees, 2%

Other**, 4%

2012 Breakdown of revenue by transaction type

Majority of advertiser spend is sales commission

**Other refers to categories where fewer than 5 participants provided revenues in 2012. These categories include: hybrid commission payments (mixture of affiliate and lead generation activity), display banners leading to capture forms, email list rentals, email & SMS broadcast, lead validation & verification, other unclassified revenue.


0% 5% 10% 15% 20% 25% 30% 35%

Cashback websites

Coupon and rebate websites

Loyalty & reward websites

Comparison sites and directories

Content, blogs etc

Paid Search (PPC sites)

Other**

% of total revenue

Base

d on

94%

of t

otal

affi

liate

reve

nue

H1 2

012

Affiliate marketing spend is spread across a variety of publishers

*Note: revenue from price comparison websites is likely to be much higher in terms of the overall market. However, this graph only captures data from the PwC survey which is largely focused on the major affiliate networks and lead generation companies in the sector **Other includes display networks, email list & newsletter lists, registration path or co-registration sites, surveys, social media, content unlock websites and other unclassified The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Email list and newsletter list

Display networks

Registration path or co-registration

Content sites, blogs etc

Other**

% of total revenue

Base

d on

90%

of t

otal

lead

gen

erat

ion

reve

nue

H1 2

012

Lead generation spend also across a variety of publishers

*Note: revenue from price comparison websites is likely to be much higher in terms of the overall market. However, this graph only captures data from the PwC survey which is largely focused on the major affiliate networks and lead generation companies in the sector **Other includes PPC sites, price comparison sites, coupon & rebate websites, social media, loyalty & reward websites, cashback websites, surveys, content unlock websites and other unclassified Fewer categories are shown in this case as the sample size is smaller The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

• Sales generated through sites specifically designed for mobile and tablet devices currently accounts for just 4-5% of the total market, primarily because tracking capability is currently less sophisticated on many mobile websites/ platforms

• However, our market interviews indicated that mobile & tablet devices are expected to drive a considerable growth for Online Performance Marketing longer term

• Advertisers expect to increase monetisation of the fast growing apps market, whilst launching a greater number of mobile specific promotions, deals and offers to its customers

0%

5%

10%

15%

20%

25%

Mobile Tablet

% o

f tot

al re

venu

e

Online Performance Marketing revenue via mobile and tablet devices (1H 2012) - Affiliate and Lead Gen

High

Low

Average Based on 12 of 27 submissions

Note: the survey data potentially over-represents the importance of mobile and tablet to this market, as companies who are unable to split out mobile and tablet revenue are more likely to have a lower percentage of revenue through these devices than peers

Mobile and tablet specific sites generate around 4-5% of total revenue


0%

10%

20%

30%

40%

50%

60%

70%

80%

Retail Travel & Leisure Telecoms &Media

Finance Other (utilities,gaming, auto

etc)% total sales % value sales

Retail dominates affiliate by volume and value of sales

Note: this split relates to survey participants only and hence is largely driven by sales volumes tracked by the major affiliate networks. As such, this analysis does not provide detailed coverage of price comparison sites, in-house affiliate programmes and other in-house tracking solutions


The survey also identified the largest sub-sectors within each vertical

Travel & Leisure Finance

#1 Hotels & Accommodation

#1 Insurance

#2 Flights & Airlines

#2 Credit Cards

Retail Telecoms & Media

#1 Clothing & Accessories

#1 Mobile Providers' Products & Services

#2 Electrical, White Goods & Computing

#2 Subscriptions (e.g. publishing, film)

#3 Home & Garden, DIY

#3 ISPs

#4 Music, DVD & Entertainment

#4 Technology

Note: this split relates to survey participants only and hence is largely driven by sales values tracked by the major affiliate networks. As such, this analysis does not provide detailed coverage of price comparison sites, in-house affiliate programmes and other in-house tracking solutions. In addition, less than 10% of lead volumes were split by sector, and as such the lead volumes are excluded from the industry analysis presented above The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

Retail Finance Travel Telco & Media Auto Energy Gaming

Most prominent model

Affiliate Affiliate & Lead Gen Affiliate Affiliate &

Lead Gen Lead Gen Affiliate & Lead Gen Affiliate

Typical % of online mktg. budget

5-25% 2-10% 5-15% 20-30% 5-10% n/a 10-25%

Typical publisher types

Cashback; Vouchers; Loyalty; Content

Aggregators; Cashback

Content; Aggregators

Cashback; Aggregators;

Vouchers

Content; Publisher Network

Aggregators; Content

Content; Voucher

Typical commission structures*

Variable; 2-8%

Fixed; 8-12%/ £10-

100

Fixed & Variable; 1-12%

Fixed & Variable; 4-10%/ £10-70

Fixed; £40-60

Fixed; £15-75

Variable; 25%+

(often a recurring

lifetime value)

*Note: variable commission relates to a publisher being paid a % of the basket value; fixed commission relates to a publisher being paid a fixed fee for each transaction; typical commissions are illustrative and have been sourced from publicly available sources

Typical use varies by sector and item value


On average OPM suppliers expect their revenue to grow by c.25% in 2013

• Our survey participants generally expect to deliver strong revenue growth in 2013 (a combination of underlying market growth and share gain)

• Although advertisers indicated Online Performance Marketing is an effective channel they will continue to invest in, many felt that next year’s budgets would increase more gradually, e.g. 5-10% p.a.

• Growth is most likely to come from some established advertisers focusing more of its online budget into this channel, coupled with new advertisers investing in this space

Note: the survey data will most likely over-represent growth in the wider market. Survey participants were asked to provide their revenue forecasts for 2013, which will factor in underlying market growth, plus market share gain

0% 5% 10% 15% 20% 25% 30% 35%

Decrease or no increase

0% to 10%

11% to 20%

21% to 30%

31% to 40%

41% t0 50%

51% to 100%

More than 100%

% of respondents


“We intend to focus more heavily on high quality content sites going

forward” (Large advertiser)

“A major trend in the next two years will be further growth in the technology platform space”

(Publisher)

“We should have slightly more budget for our affiliate marketing

programme next year as it has been an efficient channel for us”

(Large advertiser)

“Over next 2 to 3 years, we are looking to grow our affiliate programme at least 10%”

(Small advertiser)

Maturing channel is attracting increased investment based on proven returns


The market continues to evolve and innovate

• Improve consistency of definitions

• More advanced attribution models will enable advertisers to reward publishers more accurately

• Rapid growth of mobile, social and video will drive changes

• High quality consumer content websites remain key

• Enhancements in data and technology will increase efficiency


5. Summary


Summary for H1 2012

• Advertisers spent £814m on Online Performance Marketing in 2012

• Generates £9bn of transactions (£11 for each £1 spent)

• 100 million sales transactions and 70 million leads

• 3,000 – 4,000 active advertisers across 10,000 publisher websites

• Market grew 57% from 2008 – 2012 at average of 12% p.a.

• Different sectors use different techniques when using OPM

• Increased use and further innovation will encourage more growth


Big thank you

and all contributing companies


[email protected] 0207 050 6969


mailto:[email protected]

Disclaimer

The IAB retained PricewaterhouseCoopers LLP (the UK firm) (‘PwC’) to compile the online adspend figures collected by the IAB from its members in H1 2012 and to deliver to the IAB the topline figures collated from this review; PwC has not verified the information which it received from the IAB, and provides no opinion or other form of assurance with respect to such information. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, neither the Internet Advertising Bureau UK (the ‘IAB’) nor any of the IAB’s contributors/subcontractors accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.


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