Impact Doubles Down on the Affiliate Industry

Summary:

  • Since Providence invested $75M in 2019, Impact has made four acquisitions (Mediarails, Activate, Trackonomics & Affluent) which will enable the aggregation of data from multiple affiliate platforms, networks and publishers and provide users tools to create custom reports.

  • Impact now has data aggregation and reporting tools for each key market segment (publishers, agencies & brands).

  • The acquisitions have the potential to connect the supply and demand sides of the industry under one automated operating system, removing significant friction that plagues the market and limits industry growth.

  • These acquisitions present significant strategic, management and execution challenges. But, Impact has proven strong at both product development and executing go-to-market strategies.

  • After more than a decade as the market disruptor, the acquisitions solidify Impact as the clear market leader in the U.S. but questions remain about the direction of the industry and how Impact will manage its leadership position.

  • Competitors and partners worry that Impact will take advantage of their access to data and control of the user base (agencies and publishers) limiting competition while maintaining opacity of pricing and not addressing fraud issues.

  • How big is Impact now? Valuation depends on what revenue and growth multiples you apply, but even moderate assumptions put them within range of an IPO.


Key takeaway:


Impact’s recent acquisitions are a series of bets on the affiliate industry and evidence that brands are driving top line performance revenue from a broader range of partners including traditional publishers and influencers. In the past affiliate companies like Rakuten and CJ Affiliate made investments to diversify their offerings into adjacent marketing channels. Impact is spending their resources solidifying their position in the affiliate market by acquiring the tools that active affiliate managers use. Competitors and industry partners are worried about how Impact will use their position of control.



What does this mean for the affiliate market?


Biggest picture (the economy):

  • Low interest rates are driving investors to look for returns in non-traditional markets.


Big Picture (the advertising industry):

  • The rise in ecommerce and diminishing returns from Google, Facebook and Amazon are driving investors to look for returns in the affiliate channel.

  • Google, Facebook and Amazon also utilize the data they collect from advertisers to further their business interests. Investors have seen this potential in the affiliate/partner industry and it is difficult to envision an outcome where connecting these dots is not a core part of Impact’s strategy.

  • This also looks like a bet on the agency model, which has taken a hit with the rise of DTC and integrated performance campaigns.


Our picture (the affiliate industry):

  • The affiliate industry’s growth has long been limited by a lack of transparency between demand and supply. Lack of clarity on pricing, inconsistent data and fraud have limited the growth of the industry and many have been advocating for more transparency. The industry now relies largely on Impact to address these issues.

  • Aggregating brands, publishers and agencies under one roof will eventually lead to a major shift in how affiliate programs are managed. However, Impact is still far from fully automating the process, requiring the support of their agency channel. But, as Impact connects the dots and automates the recruitment and bidding processes, OPMs should be aware their value prop will diminish unless they can elevate their offering.

  • In the short term this is also a bet on the agency (OPM) channel. Recent Private Equity investment in Acceleration Partners and Gen3 and the subsequent roll ups indicate some investors think that a large affiliate agency would be an attractive target to a holding company. If so, Impact would be in a good position to be the platform of choice for holding companies and their enterprise clients.

  • End of last click? The publisher market is now more sophisticated. With more insight, these publishers could invest in building more effective products, requiring Impact to dedicate significant resources building an operating system without bias to data from their competitors.

Local picture (The platform/network market):

  • These acquisitions allow Impact users to aggregate data from other networks and platforms, raising a number of potential issues. How will Impact treat this data versus their own? How will other platforms and networks regard the APIs that now feed into Impact? This is an opportunity to either (a) create more transparency between buyer and seller, or (b) to double down on the already opaque marketplace for affiliate ad placement.

  • Impact could have built these tools themselves. But, acquiring Trackonomics and Affluent removes the acquisition option for their competitors, forcing them to use valuable dev resources if they choose to compete.

  • This gives Impact’s competitors clarity:

  • Partnerize can focus on creating the best global tech in the “all-in-one” market.

  • CJ Affiliate can double down on service and publisher relationships.

  • Awin has made similar product investments while also stitching together regional platforms. There will likely be heavy competition at the global level.

  • Rakuten’s position remains unclear with the continued decline of big box advertisers; however, they have been focusing on the loyalty consumer brand to compete with other rewards publishers like iBotta.

  • Smaller, flexible, lower cost platforms that focus on niche segments (Refersion for DTC or PartnerStack for B2B) have an opportunity to capture share.

  • What Impact does with their leadership position will largely depend on how much potential they see in the market. If their investors see a $1B company, they are betting on the affiliate/partner marketing industry as whole. If they see a $250M company they see a company that is in a position to take share via automation and execution.

  • The former approach sees a much bigger pie and is betting on the market as a whole; the latter sees a fixed pie that they need to capture as much as possible. Either way, Impact has proven they are capable of execution.


Micro picture (Impact):

  • The acquisitions may be more a signal of intent more than anything. The manual and fractured nature of affiliate has still not been addressed. Publishers will still have to find brands on different platforms and the process of getting and updating links remains riddled with friction. Their product teams now face the challenge of integrating these different platforms into one system.

  • Impact continues to unbundle. This allows them to create distinct go-to-markets for different target markets. But, it also presents more complex management challenges. As product offerings proliferate and customer types grow, management complexity is exponential. Impact’s most impressive feat over the past decade has been consistent execution, but they might be nearing the point of needing a professional management level.

  • Product Challenges: integrating all three products while pursuing an a la carte go to market strategy with several customer segments is a challenge that keeps CPOs up at night.

  • Conflicts of interest:

  • Agencies and publishers use Affluent to track data across platforms

  • Publishers use Trackonomics to track data across platforms/ networks.

  • Global: Impact is still largely a U.S. business in an increasingly global market.


Up next from Martech Record:

  • What are the drivers of investment in the affiliate industry and what are the implications for the future? (4/20)

  • How valuable is Impact and will they go public? (4/21)

  • 2021 PMA Spring Conference: Industry Inflection Point. (4/22) Register here

  • The future of OPMs: how industry investment, automation, and acquisition is changing the face of the affiliate service. (4/26)

  • The drivers of change in the publishing industry: privacy, innovation and arbitrage (TBD)

  • Webinar: Mergers & Acquisitions in the affiliate industry. Examining the drivers of growth and potential outcomes. (4/29). Register here

  • Predictions on the future of the industry. (5/3)

  • Industry Happy Hour Sponsored by Phonexa. (5/13). Sign up here.

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