What is the size of the affiliate market? And other questions we attempt to answer.

Will Impact go public?


Summary:

  • Martech Record's back-of-the-envelope estimate of the size of the U.S. affiliate market is $56B.

  • Martech Record estimates the current market for affiliate tracking, reporting and payment tech is $424M, with the potential to grow to $2.29B in five years.

  • Impact has made outward indications they are preparing to go public via hiring, and Martech Record's estimate of their value places them within range of an IPO.

Here is something odd: no one really knows how big the affiliate market is. There is an oft-cited report by Forester, commissioned by Rakuten from 2016. It is old and potentially biased, but that Rakuten marketing team deserves a slow clap because it is still the only data point we have.


Maybe there is a good reason for this: nobody knows how to define the affiliate industry.


Does the affiliate marketing market include any partnership that can be tracked, reported and paid on? Or is it simply the evolution of the coupon industry?


Most industry veterans were surprised to hear our investor panel declare that the transformation of the industry is only in its first inning.


But that means the industry itself must be much bigger than coupons or deals.

Still, there is no guarantee that affiliate tech and services will be the winner. What is to stop other channels from managing payments to influencers or social commerce campaigns?


We will attempt to value Impact because it is a proxy for the future value of the affiliate market and an indicator of where the market is going.


Martech Record’s rough estimate of Impact’s revenue is somewhere between $60M-$90. That number includes recent acquisitions and is based largely on conversations with industry insiders and financial service professionals. For the purpose of this back-of-the-envelope process, we’ll split the difference and say $75M.


But their valuation has less to do with their current revenue than with your view of their potential for growth.


The inputs to determining Impact’s value are: Revenue x a number we choose that reflects their future growth.


Investors interviewed by Martech Record shared that revenue multiples for similar martech companies are currently somewhere between 3x and 16x, implying a range of $225M-$1.2B.


So which is it? $225M or $1.2B?


Two caveats:

  1. A deli in New Jersey that generated only $13K in annual revenue is valued at over $2 billion and Gamestop is worth (still!) 30x what it was a year ago. None of us know what value means anymore.

  2. This is a fun exercise one would do in a case interview. We make assumptions based on experience but no first-hand knowledge. Don’t put this in your investor deck.

To determine growth we need to know two things:

  • Impact’s addressable market.

  • How much of that market Impact can capture.

First, how big is the current affiliate market?

  • In 2020, U.S. ecommerce revenue (excluding Amazon) was $565B, according to DigitalCommerce360 and backed up by the U.S. Census Report.

  • An oft-used (but never confirmed) rule of thumb is affiliate represents 10% of ecommerce revenue or $56.5B.

  • Publishers take about 10% of that or $5.65B.

  • Platforms charge a huge range. 10% of the publisher commission is often used as a rule of thumb, but pricing is trending downward (it was 30% a decade ago) and this tends to ignore giant programs that represent a large amount of revenue at tiny commissions. We will use 7.5% or 0.75% of total spend as a rough assumption.

This means the current market for affiliate marketing tracking, reporting and payment tech in the US is $424M.


There are four ways that $424M could grow over five years:

  • The traditional affiliate ecosystem grows (coupons, deals, loyalty, etc.) This market will grow, but commissions taken by platforms will continue to shrink, plateauing the size of the market.


  • New verticals: Health Care, B2B, automotive, local, SMB, etc. The pandemic made it clear that any product or service can be an ecommerce product or service. On our latest webinar, Ben Faw, the co-founder of Best Reviews, estimated that the ecommerce market in North America is still only at 5% penetration. If we are at 15% penetration in five years, affiliate stays at 10% of ecommerce and commissions move down to 3%, then the market will be $763M.


  • Affiliate’s share of media revenue grows. Commerce content, influencers, social, reviews, legacy evergreen content, video, audio etc. This has potential for enormous growth. On our recent investor webinar, Blake Saunders said that during due diligence for the The This Old House brand, investors did not even consider affiliate as a potential future revenue stream. This anecdote combined with the small but growing revenue streams from commerce content, social commerce, reviews and influencers demonstrate the market potential. If affiliate grows from 10% to 30% of media revenue in 5 years, the market for tracking and payment platforms triples to $2.29B.


  • Affiliate tracking, reporting and payment tech is effectively adopted by all partner channels (VAR, Channel, Marketplace, Strategic/B2B.) This is not going to happen. But if it does, this is how you get to your 16x multiple.


Impact currently has 18% market share (by our rough estimate.) If the market for affiliate tracking, reporting and payment tech is $2.29B in five years and Impact is able to increase share to 30%, their revenue would be $763M, or about 10x what it is today. According to investors, these kinds of projections could attract a high multiple (10+), valuing Impact at over $750M.


We don't know if these things will happen, but we do know that we are in a frothy market where high end estimates are being taken seriously.


{Note: we’re ignoring two big inputs: general market growth and global growth. If you’re getting your MBA and want to send us your model, please do.}


It is up to you to decide if affiliate is a simply a digital version of the coupon industry or the underlying engine of the partnerships that define future relationships between brands and media. We think it’s somewhere in between.


Finally. Is Impact going public?


First, going public is not simply an exercise in growth and size. It is also a strategic choice to fund growth through the public markets.


But there are key factors:


Impact is within valuation range. Low end valuation for a company going public is around $250M with $1B being the (increasingly common) uncommon unicorn.


Impact is hiring people who could position them to go public. Going public also requires hiring people to help you prepare. Impact has made a number of impressive hires recently, including a CFO with experience in the public markets and a CRO from Salesforce/Oracle.


A frothy market, and it feels like 1999 right now.


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