Affiliate Marketing in Transition:
How Blockchain can revolutionize the industry
Interview conducted by Online Marketing Rockstars (OMR) with Matthias Stadelmeyer, CEO of Tradedoubler
Affiliate marketing is probably the oldest marketing discipline on the internet. The first program was reportedly started in 1989 by PC Flowers & Gifts, an online flower shop. Since then the industry has grown into a multi-billion-dollar industry, which is utilized by some of the world’s biggest brands. Disruptive change within the industry tends to come in waves, such as the introduction of cashback or retargeting and is followed by periods of relatively low levels of advancement. Matthias Stadelmeyer, CEO of Tradedoubler, takes a critical view of the industry: He misses innovation. In an interview with OMR he reveals the main problem areas of affiliate marketing – and how he intends to change them with blockchain and other technologies.
OMR: Matthias, affiliate marketing has been around for almost 20 years now. The reputation of the industry has fluctuated a lot in that time. One popular criticism is that companies in the sector are just acting as intermediaries and do not add any additional value of their own.
Matthias Stadelmeyer: I don’t see it that way, of course, and it’s also easy to disprove. We provide a range of services blending technology with human expertise. On the technical side, we provide the tracking that enables the partnership between advertisers and publishers in the first place, and this requires constant development to keep pace with changes in the market like ITP2.0. Alongside that we mitigate the logistical challenge of paying commission to thousands of partners in each market. On the advisory side we act as consultants, creating growth and sales for e-commerce partners and helping publishers to monetize their inventory. This is an additional added value that can be clearly identified and measured.
What is the reason that affiliate marketing does not have a clear image and is sometimes not taken seriously as an industry?
One reason is the history of the industry and the channel. Affiliate marketing has been around for 20 years now and, on the traffic side, a lot has changed since then. The channel was a test bed for new and emerging channels that merchants could not manage in house, leaving room for talented publishers prepared to arbitrage risk against reward. Retargeting, for example, matured via affiliates, but today it is regarded as an independent channel – and deservedly so. The same can be said about Search. But for some time now we have seen relatively few new traffic channels emerging apart from maybe Influencer Marketing. There have been new players in terms of onsite technologies, but from a traffic perspective not much has happened in the last ten years. There have been no major innovations and the role of affiliate marketing has not changed. But challenges can also present opportunities and it is with that entrepreneurial spirit that we choose to approach the market.
What challenges and opportunities do you see?
Due to its versatility, there are many ways to work with the channel vendors, and the first challenge for a merchant is deciding how they want to engage with the channel. Depending on strategy and internal resourcing and expertise, a merchant can choose between full service, which includes full consultancy, self-service, or a private network with a focus on technical functionality. Wider challenges that effect all areas of digital marketing include data transparency, protecting against potential fraud, attribution, user journey and timely payments. Maintaining accurate and reliable tracking is also a focus due to the effects ePrivacy and the introduction of new browser features like ITP2.0. But these challenges can also point to greater opportunity and the chance to evolve and differentiate our channel.
How does Tradedoubler approach these issues?
In the long run, we believe the introduction of blockchain technology can overcome most challenges in affiliate marketing and solve many of the problems. The decentralized database structure of blockchain is simply another way to store data, and by design it can dramatically reduce the risk of fraud and inaccuracy. Once data is validated in the blockchain it cannot be changed, is extremely difficult to hack, and is available for all parties to view, which means enormous progress in terms of transparency. Faster, safer transactions could help solve some of the most pressing challenges within affiliate marketing and ultimately provide publishers fraud-proof-tracking, transparent validations, undisputable attribution, and prompt payment . In February, Tradedoubler therefore announced its new product vision , which will use blockchain technology to store data.
That sounds like a vision of the future. How far away are you in reality?
Granted, it’s still a little visionary. However, we have developed the first prototype and are testing Smart Contracts, which are digital protocols that automatically check when a sale is valid and when the commission is due. This is a great leap forward in terms of automation, and also enables micro-payments for publishers and creates clearly defined guarantees on the quality of sales for advertisers. For a handful of customers we are already storing data in the blockchain and will be developing it further.
So it sounds like it’s already at an advanced stage?
It’s working already, but we’re still at the beginning. Scaling the technology is a big challenge because affiliate marketing generates huge amounts of transactional data. Tradedoubler alone tracked 20 million sales and 3 million leads for customers in 2018. These are the result of 1.7 billion clicks – the impressions required for this are in the trillions. Processing data volume automatically is complicated and expensive – roughly comparable to computer memory in the past. At that time the step from 64 to 128 MB was an enormous performance boost and cost a lot. Today, this performance is almost free of charge.
What’s your schedule?
We are convinced that introduction of mainstream blockchain in affiliate marketing will come. It’s hard to say exactly when. From a technical point of view, scaling up the tests we are currently doing will take a little time. However, our objective is quite clear. Applying blockchain technology to store and use affiliate marketing data will become the industry standard. In one to two years, we should be able to offer a solution in this area.
And until then you invest everything in development?
Not everything, of course. In total, around 20 percent of our expenditure goes on product development and programming, which is a good proportion, and that is distributed across our full product stack. We recently released the first stage of our Open API platform, which we also believe will be a sea-change in how advertisers and publishers interact. The recent release was the Publisher API and our new Publisher Interface, with more interfaces planned for later in the year.
What does that mean?
We have completely redesigned and revolutionized our platform, which is the basis for everything we do, and opened it up so that external parties can connect to data points via API and use all the functionalities of our platform themselves. The API for publishers, with 120 pages of documentation, is already finished. In the future, publishers will have an extremely wide range of new possibilities. They can use our data to develop their own dashboards, integrate them into an existing solution, develop new business models and much more. We will soon be releasing a browser extension for Chrome which will allow publishers to get a quick overview of their activities and adjust them if necessary.
Thank you very much for the interview, Matthias.
This interview was published in German language on the OMR website.