Search Engine Marketing Thoughts - Blogation

I frequently get asked to describe the differences between affiliate marketing and online lead generation, so I figure a brief post on the topic is warranted.

Lead generation and affiliate marketing are often confused primarily because their core monetization scheme - performance-based marketing - is the same. In other words, affiliates and lead generators only get paid when they deliver something of value to their advertiser. This could be a sales lead (at a basic level, it could be an email address; at a more advanced level, a completed form or an actual phone call), or an actual conversion (a sale of a product, a subscription to a continuity program like NetFlix). You can call it CPA ("cost per acquisition") or CPL ("cost per lead") but you can't call it CPC ("cost per click") or CPM ("cost per thousand impressions") or anything else where the buyer pays for traffic or placement but not for actual leads or sales.

But beyond the way they are paid, these two types of advertising are really quite different. As I see it, there are three primary differences worth discussing:

1. A Focus on Lead Quality. Affiliate marketers see the end goal of their business as delivering a lead or sale to their buyers - period. Whether that lead eventually converts into a sale, or whether that sale ends up being refunded is not relevant to an affiliate. By that, I don't mean that affiliates don't care about the financial success of their partners, I simply mean that the affiliate marketing model is priced on the assumption that the affiliate has no responsibility (beyond preventing outright fraud) for the end value of the lead/sale they deliver.

If a lead generator gets $30 or $40 for a lead from a lead buyer, you would expect an affiliate working with that same advertiser via a major affiliate marketing portal like CommissionJunction (CJ), LinkShare, or ShareASale to get 40% to 50% less per lead. The buyer expects to sign up a lot more publishers through CJ (an automated process) than he does via lead generation relationships (a business development process that almost always requires human interaction), but he expects that this less personal approach will result in less consistent lead quality across all his affiliates. Indeed, apart from wanton fraud from affiliates, the buyer will likely pay for all leads he receives from the affiliate network, on the assumption that his 40-50% cut in CPAs will balance out an increase in fraud or poor quality.

Lead generators, on the other hand, are judged by a much tougher standards. As I noted in my analysis of the recent LeadsCon lead generation conference in Las Vegas, lead generation companies are judged on two factors: the quantity and quality of their leads. A lead generator who delivers a huge volume of leads that turn out to have low quality to the lead buyer will soon lose his relationship with that buyer. To wit, lead generation companies are increasingly obsessed with "post-lead quality management." Many have developed sophisticated "lead scrubbing" technology to eliminate fraudulent leads before they deliver them to the buyer. Lead scoring companies like Targus and eBureau have created significant businesses by providing additional lead quality analysis to lead sellers. And the increasing importance of "hot transfers" (where the lead seller pre-qualifies a lead over the phone and then transfers that person directly to the lead buyer), is yet another way lead generators are taking responsibility for the quality of their leads.

2. Business Development. Affiliate marketing is a business that can be successfully run by the proverbial 'guy in his basement.' Beyond basic Web development skills and an understanding of marketing, any can start up an affiliate business in a matter of days. Of course, that doesn't mean that anyone can create a sustainable and profitable affiliate business - that is much harder to do - but the basic elements of affiliate marketing have low barriers to entry.

Most affiliates have little to no personal interaction with their lead buyers. And what interaction they do have involves grabbing new creative, getting updates on promotions, and other administrative tasks. A single affiliate manager at a major lead buyer will likely handle several thousands affiliates.

Lead generation, on the other hand, requires additional effort. Lead generation companies tend to invest heavily in business development or sales functions. These people then go out and contact potential lead buyers who are willing to develop direct relationships with the lead gen company. In many cases, the lead gen company can then 'multi-lead' (send the same lead to multiple buyers), thereby increasing their back-end economics. Alternatively, the lead gen company can create a 'ping-tree', where the lead is only sold to one buyer, but is essentially shopped around from buyer to buyer to get the top price.

3. Participation in Sales Process. The majority of leads from affiliates are sent from a link on the affiliate's Web site to the lead buyers form or Web site. Affiliates have some control over the link anchor text, or the banner they want to use, and sometimes the page on the lead buyer's site to which the user will be sent, but the affiliate is not allowed to do much more than that.

Lead generators, on the other hand, are expected to do much more than just linking to an affiliate's site. Most lead generators will develop their own form and send leads directly to the lead buyer through technology (XML, for example). Lead generators are increasingly employing their own call centers where they can talk to potential leads first, prior to sending them off to the lead buyer (see discussion of hot transfers above).

Conclusion

Though I have been critical of affiliate marketers in the past, the point of this post was not to advocate lead generation over affiliate marketing. Both channels can be valuable to lead buyers, and both can be profitable for online publishers. But there's no doubt that these are different channels which require different strategies and different expectations. Whether you are a lead buyer or lead seller, understanding these differences can save you a lot of time as you plot the direction of your marketing strategy.