Why Managed Networks?

An Introduction To Managed Networks

TechTransform, March 6, 2002: What is this managed network thing, and why is it so different?

A managed partner network recruits and manages people who will refer business to you through e-commerce. They are commonly called affiliates. Amazon devised this program originally and they explain it well. (Click here for details.)

The affiliate business is workable, but it's about recruiting thousands of referrers who will typically refer very little. For example, while every book on this website is tagged to amazon with our source code, we make little money for Amazon or for us. Only when we actually promote a book does money start flowing.

In other words, only active affiliates are productive. They comprise at most 5% of any major affiliate program.

That should be no problem, since you don't have to pay affiliates up front, but what is off-putting to most marketers is that it's so much work.

The amount of machinery involved in an affiliate program is mind-boggling. You'll need to recruit affiliates, manage a signup system, provide marketing materials for the affiliates, create the persuasive offers, recruit the right affiliates, track sources of revenues, process transaction and pay commissions, manage chargebacks and refunds, maintain a flow of communications to affiliates, and all the many other fun details. And count on management to be unaware of the difficulties.

This is why most marketers don't do it at all. A study that market leader Be Free showed us some time ago claimed that affiliate programs was tied for number one in effectiveness with emails to current customers... but was implemented in only 16% of online marketing departments. Meanwhile, banner advertising was implemented in 98% of these departments, with the effectiveness that we all know and the rest of the world has come to learn. And the reason is the complexity.

That's a daunting business if you're trying to recruit thousands of small ones - but why do it? Affiliate programs can be launched to manage your campaigns with large partners. These are the natural allies in a channel for any company. They are high-leverage. They are the trusted (or at least permitted) intermediary for a large chunk of that company's potential customers.

In the consumer world, they are known as P4P, (Pay For Performance) networks. Also known as CPA (Click Per Action) marketers. A good example of a network that does a good job with its audiences is euniverse, which manages a network of consumer sites like Joke Of The Day and Cupid Junction and plays them against each other for revenue. It's one of the few public dotcoms that are consistently profitable.

In the enterprise world, you're talking large resellers, system integrators, potential bundling partners who have complementary software and hardware, and so on.

So basically we're talking about taking what is normally a very labor-intensive activity of channel marketing or strategic marketing or business development , call it what you will, and using the affiliate program machinery to automate the details.

The key is finding the right partners (many of whom have been knocking on that company's doors) and tailoring the product offering and the marketing to that partner's audience. More

Riggs Eckelberry

Updated August 28, 2002