Live Issue... Asian brands need time to warm to affiliate marketing

Affiliate marketing, a discipline that has boomed in the West over the past couple of years, has so far been sluggish in Asia. But with, potentially, billions of dollars at stake, it could be the next big thing in online marketing.

Affiliate network dgm, one of the major players in the UK, recently announced it would extend its network to Hong Kong and Southeast Asia, with Apple one of the first to sign up. It already has affiliate businesses in Australia and India.

For the uninitiated, affiliate marketing involves deals between online sellers and online publishers (or affiliates). The publishers drive traffic to their partners, and are rewarded on a per-sale (or more rarely per-action) basis. They can drive traffic through means such as search, display ads or the content on the site. Affiliate networks such as dgm are there to build groups of publishers and act as intermediaries, generally taking a cut of the commission paid to the affiliates.

The benefit of affiliate marketing to the marketer is that the risk is transferred to the affiliates. It’s a model that has taken off. A UK report by E-consultancy estimated that US$6 billion in sales were generated by affiliates last year, up 45 per cent year on year. Key client sectors include finance (credit cards, for example), cars and travel.

James Hawkins, group head of search at dgm and the person overseeing the new network, believes the same can happen in Asia. This region prides itself on its entrepreneurial spirit, he says. Affiliate marketing offers another source of income to publishers while benefiting advertisers.

So why has it not taken off yet? For a start, the online market in the region is complex, with varying levels of internet penetration and sophistication, as well as language barriers between (and within) countries. E-commerce is yet to take off in the way it has in the West due to limitations with online payment processes, limiting sales-based marketing models.

According to Grant Watts, CEO of Singapore based online marketing group DMS, this is a particular problem in Southeast Asia. With the exception of Singapore and possibly Malaysia, online users typically prefer to do all their research online, and call somebody to move the transaction forward. This is a direct barrier to affiliates where online transactions are critical to the success of the model.

Another issue is the sophistication of the web sales market. Affiliate marketing relies on pay-per-performance models that have yet to catch on in a region where many marketers still buy online ads on a cost-per-thousand basis.

Most publishers, especially local publishers, are still not ready to accept a model where their revenue is not guaranteed because they are not confident in how their inventory will perform, says Andrew Tu, digital director, Southeast Asia at OMD.

Tu also points to a lack of performance-tracking by marketers, making the value of new customers hard to fathom, and the lack of adequate technology platforms that can show the relevant data.

Joseph Lam, who has built an affiliate network in China at Ignite Vision, believes the Chinese e-commerce market will reach a meaningful size in about three years. However, he agrees there is plenty of work to do before affiliate marketing can take off — in particular with improving transparency. Trust is a problem, he says. The main issue is a common lack of self-discipline among both publishers and advertisers, and even some networks, in reporting results. This has hurt the credibility of the model.

As internet penetration and e-commerce grows, the outlook for affiliate marketing is bright. But it will require a more mature online market to thrive.