Ad Exchanges Will Kill Affiliates?

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Ad exchanges are gaining significant traction in online advertising.  Do they pose a real and present danger to affiliate marketers?

Ad Exchanges Defined

As Wikipedia defines them, “Ad exchanges are technology platforms that facilitate the bidded buying and selling of online media advertising inventory from multiple ad networks.”1 The Rubicon Project and Pubmatic are examples of such exchanges.  The marriage of comprehensive, online visitor tracking, real-time ad serving, and standardized ad formats, created the environment necessary for the development of ad exchanges.

Their growth rates are nothing short of phenomenal.  According to Razorfish, ad exchanges are becoming the industry standard.  They cite a report by IDC analyst Karsten Weide for supply side platform PubMatic that RTB systems in 2011 will be about $1.1 billion, with the number expected to double to $2 billion in the U.S. next year. 2

Risk to Affiliates

In theory, ad exchanges are supposed to maximize the effective cost per thousand impressions (eCPM) for publishers and return on ad spend return (ROAS) for marketers.  Without debating whether or not these exchanges do accomplish these goals, let’s assume that they will be able to do so in the future.  The result may have a massive impact on affiliate marketers.

At the most basic level, traditional affiliate marketers bring expertise in media buying, advertising creative, and conversion optimization together.  They are able to buy online media more effectively and better convert landing-page visitors into buyers.

If online ad exchanges are able to eliminate most of the inefficiencies associated with media buying, end customers gain the same media buying efficiencies affiliates currently enjoy.   A key, affiliate advantage would end up being neutralized.  For those affiliates, who have not developed a significant, visitor-to-buyer, conversion-rate advantage, there is a real risk that they could be run out of business.  They do not need to be made extinct by the end customer.  It could simply be from another affiliate that focused more on conversion optimization or ad creative.

When combined with the proliferation of website conversion optimization tools available, end customers may soon be able to significantly reduce the arbitrage advantage that many affiliate marketers currently enjoy, forcing the affiliates to evolve or die.

  1. (http://en.wikipedia.org/wiki/Ad_exchange)
  2. (Paid Content.org – November 9th, 2011, Razorfish:  Ad Exchanges Are Becoming The Industry Standard, by David Kaplan)

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