Performance marketing study

The value of
UK Online Performance Marketing
January 2013

Agenda
1. Introduction
2. Methodology
3. Headline results
4. Detailed analysis
5. Summary

The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

Report made possible because of the financial
contributions of…

Company Logo Website
http://www.iabuk.net/
IAB

A4U http://www.affiliates4u.com/

AdPepper http://www.adpepper.co.uk/

Affiliate Window http://uk.affiliatewindow.com/homepage/about-us/

Affilinet http://www.affili.net

BSkyB http://www.sky.com/shop

Commission Junction http://uk.cj.com/

Debenhams http://www.debenhams.com/

Forward Internet Group http://www.forward.co.uk

GOALLOVER http://www.lolagrove.com/

LBi http://www.lbi.com/uk/

Mindshare http://www.mindshareworld.com/

Magnetise Group http://www.magnetisegroup.com/


Report made possible because of the financial
contributions of…

Company Logo Website

Nectar http://www.nectar.com/eshops

OMG http://www.omgpm.com

Rakuten LinkShare http://www.linkshare.co.uk/

Red Letter Days http://www.redletterdays.co.uk/Home

R.O.EYE http://www.roeye.com/

Savoo.co.uk http://www.savoo.co.uk/

Tradedoubler http://www.tradedoubler.com/

TTH Media http://tenthousandhours.co.uk/

Unanimis Consulting Ltd http://www.unanimis.co.uk/

VoucherCodes.co.uk http://www.vouchercodes.co.uk/

WebGains http://www.webgains.com/public/


1. Introduction


Background
• Existing IAB / PwC Digital Adspend Report captures above the
line advertising spend
→ Affiliate Display £85 million
→ Affiliate Search £38 million
→ Lead Generation £51 million

• Does not represent full range of Online Performance Marketing
revenues
→ Sales Commission generated
→ Set up, management and consultancy fees
→ Technology and data costs

• Sales generated by advertisers not included


Background
• IAB wanted to accurately represent size and value of the Online
Performance Marketing sector to include
→ Full range of advertiser spend (e.g. sales commission, and management
fees)
→ Advertiser sales generated and ROI

• Work closely with the Affiliate and Lead Generation Councils
• Commission PwC to create new study


Traditional affiliate network model

• The user clicks on an • Following completion of the
advertisement or product Advertiser sale, the advertiser will then
on the publisher website pay an agreed commission
(Agency) to the publisher (typically a
• The user is then re- fixed fee or a % of basket
directed to the advertiser
£ value)
website to complete the
transaction • The affiliate network will
Affiliate Network
also receive a fee for
• A cookie is placed on the £ facilitating the process
users web browser by the
affiliate network to record • An agency may also
sale origination receive a fee if managing
the advertiser’s media
• Affiliate networks are most Publisher Publisher Publisher Publisher campaign
commonly deployed when
the advertiser establishes This could be 10s, 100s or 1000s of publishers
relationships with a large Transaction or application
number of publishers, and process typically
accurate sales records completed online (e.g. via
need to be maintained a ‘checkout’)

Note: terminology varies across the Online Performance Marketing industry. ‘Advertiser’ is used interchangeably with 'Merchant' and 'Retailer'. Similarly, 'Publisher' is used
interchangeably with 'Affiliate' and 'Content Owner‘. In general, we have used the terms ‘Advertiser’ and ‘Publisher’ in this report


Traditional Lead Generation Model

• The user clicks on or views • Following delivery of the
an advertisement or product Advertiser lead, the advertiser will
on the publisher website. then pay an agreed
They are invited to complete (Agency) commission to the
an enquiry form or provide publisher (typically a fixed
contact details (e.g. to sign up
Lead captured
and passed on
£ fee)
for a newsletter, to request a
test drive, to see a quote) Lead Generation • The lead generation
Company specialist will also receive a
• Lead Gen companies are £ fee for facilitating the
most commonly involved process
Lead Capture Lead Capture Lead Capture
when the user is purchasing a Form Form Form
complex product where • An agency may also
professional advice is receive a fee if managing
required (e.g. life insurance, a Publisher Publisher Publisher the advertiser’s media
new kitchen). Lead Gen campaign
companies are engaged Typically between 20-150 publishers
when advertisers seek new Transaction or
leads in addition to those application process
gathered through its own typically completed
website or CRM database offline (e.g. via a call
centre or broker)


2. Methodology


Definition of Online Performance Marketing (1)

Definition:
A form of online advertising that differs from traditional online
display advertising, as payment is triggered by an outcome (e.g. a
user initiated action such as a purchase or submitting contact details)

2 principal forms:
Affiliate Marketing: Lead Generation:
In the affiliate model, users will In the lead generation model, users
typically click an advertisement and will typically enter their details (e.g.
be re-directed to the advertiser’s into a lead capture form) which are
website to complete the transaction, then passed onto the advertiser,
following which a fee is paid to the following which a fee is paid to the
content owners once the transaction content owners (payment is on a per
is completed enquiry basis)


Definition of Online Performance Marketing (2)

• Online Performance
Increasing volume
Marketing represents
part but not all of the Online Performance Marketing
online advertising
and commerce chain
 ()  
• Content owners are CPM CPC CPL CPA
(cost per (cost per (cost per (cost per
often remunerated thousand) click) lead) action)
on a cost per action Key:
(CPA) basis or a cost  Included in OPM

() Partially included in OPM
per lead (CPL) basis  Not included in OPM

• In some instances, Increasing value
content owners are
remunerated on a
cost per click (CPC) • Brand/Awareness building • Action/Intention focused
basis • Unregistered • Registered
• View/ Click • Lead/ Purchase
• Unqualified • Qualified
• Browsing • Researching
• Implicit • Explicit
• Reach • Targeted


UK Online Performance Market eco-system

ILLUSTRATIVE ONLY. NOT EXHAUSTIVE

Advertisers Media Agency Affiliate Network Publishers

Ad networks Lead Generation
Aggregators
Specialist Online
Performance Marketing
Agency

Tracking/ technology Email Data services (processing, analytics,
platform Marketing verification and presentation) Other publisher
solutions

Note: c ompanies m ay act as a ‘publisher’ and as an ‘advertiser’, or work across m ultiple segments of the v alue chain, e.g. operating as an ad network, lead generation and data services provider


The new study in context

Key differences:
• More participants are included from the wider
Online Performance Marketing industry in this
New Online market sizing exercise
Performance
Marketing Study • We are capturing total spend, not just media
space ‘adspend’, i.e. including commission on
sales generated, technology spend, set-up fees,
consultancy fees, data cleansing
• We have undertaken additional modelling of
non-survey participants in the Online
IAB/PwC bi-annual Performance Marketing space (based on
Digital Adspend publicly available financial data, market
data interviews and desk research)
• This survey gathers more granular data to
better understand underlying trends and
dynamics of the Online Performance Marketing
industry
• In addition, this survey also seeks to capture the
value of sales generated by Online Performance
Marketing and its value to the UK economy


Methodology overview

Online Performance Marketing
Online Performance Marketing Advertiser sales generated by
Advertiser sales generated by
expenditure by advertisers
expenditure by advertisers Online Performance Marketing

37% 47%
Survey
Survey
37%
Survey
Survey
data
data data
data 47%

53% Estimated
Estimated
Estimated
Estimated
63%
63% 53%

For future surveys:
• We will welcome feedback on the methodology and data collected in this survey
• Increased participation from across the industry in the survey, increasing the granularity of
response and historic trend data


Survey methodology

• Our current survey is based on 27 detailed submissions from 23 companies
→ Two types of submission forms: Affiliate Marketing and Lead Generation
→ Some companies provided both Affiliate Marketing and Lead Generation submissions

• Survey captures revenue from major players in the OPM market, who
represent 1000s of publisher websites
• Figures are adjusted for double counting, based on information provided by
survey participants
• Historic growth trends are presented on a like for like basis, i.e. based on
companies submitting in both years
• The figures are drawn up on the basis of company declarations and have
not been verified by PwC


Methodology for estimating advertiser spend

Online Performance Marketing expenditure by advertisers
ILLUSTRATIVE ONLY

Provides Estimation base d on a combination of publicly available financial/ Provides
historical and comme rcial data, PwC marke t inte rvie ws and le veraging insights from current
the bi-annual PwC/IAB Digital Adspe nd study
detailed trend market size
data estimate
Incremental revenue not captured in PwC survey data
£Xm

Lead Gen

Lead Gen
Affiliate
Bottom-up market sizing e xe rcise base d on re venue Marketing
submissions from a significant proportion of ke y playe rs in
Affiliate the affiliate marke ting and le ad ge ne ration space
Marketing

PwC survey Major price Large in-house Gaming B2B Lead Other sectors/ Market size
data comparison affiliate sector Gen players under- estimate
sites programme represented


Methodology for estimating sales generated

Advertiser sales generated by Online Performance Marketing
ILLUSTRATIVE ONLY

Surve y data re fined base d on
curre nt 2012 commission
le ve ls whe re sale s value and PwC estimate £Xm
acquisition cost is known (by
spe cific sub-se ctor where
available ) Lead Gen

PwC survey data

High level extrapolation based
Lead Gen on market average commissions
Affiliate
Other (a combination of market
Marketing
Affiliate interviews, desk research and
PwC survey data has informed
Marketing
Affiliate this view)
Marketing

Where sales Where sales Lead Gen Other PwC market estimates where sales Market size
value known value not sales values value not known estimate
known not known


Participants and support from

27 Detailed survey submissions from:
Ad Pepper, Affiliate Window, Affilinet, Commission Junction, Goallover, Intela,
IPT, LeadPoint, Magnetise, Mindshare, MVF Global, Nectar, Neo@Ogilvy, OMG,
Performance Horizon Group, Quidco, Rakuten Linkshare, ROEye, Savoo, Ten
Thousand Hours, Tradedoubler, ValueClick, WebGains

31 Interviews conducted with:
14 advertisers, 6 publishers, 3 media agencies, 7 survey participants and 1
independent market consultant

Additional support from:
Affiliate Window, Commission Junction, Goallover, LeadPoint, Nectar, Neo@Ogilvy,
Red Letter Days, Ten Thousand Hours


3. Headline results


3,000 – 4,000 advertisers
spending

£814 million on

10,000 publisher
websites
Lead Generation 14%

Affiliate Marketing 86%

100 million
transactions

70 million
leads generated

generating

£9 billion
sales
Lead Generation £1 billion

Affiliate Marketing £8 billion

Return on investment?

spent =

sales generated

Online Performance Marketing shows consistent
growth

Average Growth

12% per year (every year)

2008 2009 2010 2011 2012


The context of

c.7-9% of UK digital c.6% of the UK
marketing spend1 internet economy2

c.5-6% of UK retail
c.0.6% of UK GDP3
ecommerce4
This is based on Retail only sales in Online
Performance Marketing

Sources/ Notes:
1. This figure is illustrative only. Calculated based on a combination of digital adspend (captured in the IAB/PwC Digital Adspend Study) and other digital
marketing spend (not captured in the IAB/PwC Digital Adspend Study). We have excluded technology and management/ set-up fees from our Online
Performance Marketing market size
2. ‘The Connected Kingdom’ (Google/ BCG), ‘The internet Economy in the United Kingdom’ (Vodafone/ A.T.Kearney)
3. Assumed GDP of c.£1.4tn (IMF, Oct 2012)
4. Based on retail only sales in Online Performance Marketing compared to the UK retail ecommerce market value (Verdict Retail, 2012)

4. Detailed Analysis


Finance, Retail, Telecoms & Media and Travel &
Leisure are key sectors
Auto, 1%
Energy &
Utilities, 3% Other, 1%
B2B, 5%
Gaming, 6%

Travel &
Leisure, 9%
Finance, 45%
*c.90% of Finance
revenue relates to price
comparison sites

Telecoms &
Media, 10%

Retail, 20%
% of £814m total spend

What do advertisers say about Online
Performance Marketing?

“Affiliates drive the highest value
customers compared to other
channels like paid search, display “This year, Pay Per Lead campaigns
and offline channels” have been the key focus of our
(Large advertiser) marketing investment”
(Large advertiser)

“Affiliates are now 25% of all
online sales, having been around
12% five years ago”
“It helps us target customers that
(Small advertiser)
our other campaigns do not
reach”
(Small advertiser)

“42% of our digital adspend is CPA”
(Large advertiser)


Measured spend has grown
significantly since 2008
300
Between 2008 and 2012, OPM grew by 57%, due to affiliate
marketing increasing by 50% and lead generation by 136%
240
250
Growth Index vs 2008 (100)

180
200
147
150 127
143 150
100 127
100
100 105

50

0
2008 2009 2010 2011 2012*
Affiliate marketing Lead generation

*Note: The following graphs relate to the PwC survey results only, and hence can only be used indicatively as growth rates and trends in the overall market. In this, and all following PwC survey
graphs, 1H 2012 refers to actual figures and 2H 2012 is based on budgets/ outturn forecasts provided by participants during October/November. The split between Affiliate Marketing and Lead
Generation is based on the split provided in company submission data, and not necessarily allocated based on payment model splits between CPA and CPL


Cost Per Action is the
dominant payment model
Payment model (H1 2012)
CPM, 1% Other, 1% Includes CPC, CPP (Cost per call) and fixed fee
(PwC survey data does not provide
comprehensive coverage of major price
comparison sites, and as such CPC is likely to be
CPL, 12% under-represented in this analysis)

CPA, 86%


Majority of advertiser spend is
sales commission
2012 Breakdown of revenue by transaction type
Management fees, Other**, 4%
2%
Tenancy deals &
content sponsorship,
4%

Fixed sales
commission, 16%

Variable sales
commission, 74%

**Other refers to categories where fewer than 5 participants provided revenues in 2012. These categories include: hybrid commission payments (mixture of affiliate and lead generation activity),
display banners leading to capture forms, email list rentals, email & SMS broadcast, lead validation & verification, other unclassified revenue.

Affiliate marketing spend is spread across a
variety of publishers
% of total revenue

Other**
Based on 94% of total affiliate revenue H1 2012

Paid Search (PPC sites)

Content, blogs etc

Comparison sites and directories

Loyalty & reward websites

Coupon and rebate websites

Cashback websites

0% 5% 10% 15% 20% 25% 30% 35%
*Note: revenue from price comparison websites is likely to be much higher in terms of the overall market. However, this graph only
captures data from the PwC survey which is largely focused on the major affiliate networks and lead generation companies in the sector
**Other includes display networks, email list & newsletter lists, registration path or co-registration sites, surveys, social media, content
unlock websites and other unclassified The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

Lead generation spend also across a variety of
publishers
% of total revenue
Based on 90% of total lead generation revenue H1 2012

Other**

Content sites, blogs etc

Registration path or co-registration

Display networks

Email list and newsletter list

0% 5% 10% 15% 20%
*Note: revenue from price comparison websites is likely to be much higher in terms of the overall market. However, this graph only captures data from the PwC survey
25% 30% 35% 40% 45%
which is largely focused on the major affiliate networks and lead generation companies in the sector
**Other includes PPC sites, price comparison sites, coupon & rebate websites, social media, loyalty & reward websites, cashback websites, surveys, content unlock
websites and other unclassified
Fewer categories are shown in this case as the sample size is smaller The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

Mobile and tablet specific sites generate around
4-5% of total revenue

Online Performance Marketing revenue via mobile and tablet
devices (1H 2012) - Affiliate and Lead Gen
• Sales generated through sites
25%
specifically designed for mobile and
tablet devices currently accounts for just
4-5% of the total market, primarily
20% because tracking capability is currently
less sophisticated on many mobile
% of total revenue

websites/ platforms
15%
• However, our market interviews indicated
that mobile & tablet devices are
10% expected to drive a considerable growth
for Online Performance Marketing longer
term
5%
• Advertisers expect to increase
monetisation of the fast growing apps
market, whilst launching a greater
0% number of mobile specific promotions,
Mobile Tablet deals and offers to its customers

High
Average Based on 12 of 27 submissions
Low

Note: the survey data potentially over-represents the importance of mobile and tablet to this market, as companies who are unable to split out mobile and tablet revenue are more
likely to have a lower percentage of revenue through these devices than peers

Retail dominates affiliate by volume and value of
sales
80%

70%

60%

50%

40%

30%

20%

10%

0%
Retail Travel & Leisure Telecoms & Finance Other (utilities,
Media gaming, auto
etc)
% total sales % value sales

Note: this split relates to survey participants only and hence is largely driven by sales volumes tracked by the major affiliate networks. As such, this analysis does not provide detailed coverage of price
comparison sites, in-house affiliate programmes and other in-house tracking solutions

The survey also identified the largest sub-sectors
within each vertical
Retail Telecoms & Media

#1 Clothing & Accessories #1 Mobile Providers' Products & Services

#2 Electrical, White Goods & Computing #2 Subscriptions (e.g. publishing, film)

#3 Home & Garden, DIY #3 ISPs

#4 Music, DVD & Entertainment #4 Technology

Travel & Leisure Finance

#1 Hotels & Accommodation #1 Insurance

#2 Flights & Airlines #2 Credit Cards

Note: this split relates to survey participants only and hence is largely driven by sales values tracked by the major affiliate networks. As such, this analysis does not provide detailed coverage of price
comparison sites, in-house affiliate programmes and other in-house tracking solutions. In addition, less than 10% of lead volumes were split by sector, and as such the lead volumes are excluded from
the industry analysis presented above

Typical use varies by sector
and item value
Retail Finance Travel Telco & Media Auto Energy Gaming

Most
Affiliate & Affiliate & Affiliate &
prominent Affiliate Affiliate Lead Gen Affiliate
Lead Gen Lead Gen Lead Gen
model
Typical % of
online mktg. 5-25% 2-10% 5-15% 20-30% 5-10% n/a 10-25%
budget

Cashback;
Typical Cashback; Content;
Vouchers; Aggregators; Content; Aggregators; Content;
publisher Aggregators; Publisher
Loyalty; Cashback Aggregators Content Voucher
types Vouchers Network
Content

Variable;
Typical Fixed; Fixed & 25%+
Variable; Fixed & Variable; Fixed; Fixed;
commission 8-12%/ £10- Variable; (often a
2-8% 4-10%/ £10-70 £40-60 £15-75
structures* 100 1-12% recurring
lifetime value)

*Note: variable commission relates to a publisher being paid a % of the basket value; fixed commission relates to a publisher being paid a fixed fee for each transaction; typical commissions
are illustrative and have been sourced from publicly available sources

On average OPM suppliers expect their revenue
to grow by c.25% in 2013
% of respondents
• Our survey participants generally expect
to deliver strong revenue growth in 2013
More than 100% (a combination of underlying market
growth and share gain)
51% to 100%

41% t0 50% • Although advertisers indicated Online
Performance Marketing is an effective
31% to 40% channel they will continue to invest in,
many felt that next year’s budgets would
21% to 30% increase more gradually, e.g. 5-10%
p.a.
11% to 20%

0% to 10% • Growth is most likely to come from
some established advertisers focusing
Decrease or no increase more of its online budget into this
channel, coupled with new advertisers
investing in this space
0% 5% 10% 15% 20% 25% 30% 35%

Note: the survey data will most likely over-represent growth in the wider market. Survey participants were asked to provide their revenue forecasts for 2013, which will factor in underlying market growth,
plus market share gain The Value of Online Performance Marketing in the UK • A new study by IAB UK and PwC

Maturing channel is attracting increased
investment based on proven returns
“We should have slightly more “A major trend in the next two years
budget for our affiliate marketing will be further growth in the
programme next year as it has been technology platform space”
an efficient channel for us” (Publisher)
(Large advertiser)

“Over next 2 to 3 years, we are
“We intend to focus more heavily on
looking to grow our affiliate
high quality content sites going
programme at least 10%”
forward”
(Small advertiser)
(Large advertiser)


The market continues to evolve and innovate
• Improve consistency of definitions
• More advanced attribution models will enable advertisers to
reward publishers more accurately
• Rapid growth of mobile, social and video will drive changes
• High quality consumer content websites remain key
• Enhancements in data and technology will increase efficiency


5. Summary


Summary for H1 2012

• Advertisers spent £814m on Online Performance Marketing in 2012
• Generates £9bn of transactions (£11 for each £1 spent)
• 100 million sales transactions and 70 million leads
• 3,000 – 4,000 active advertisers across 10,000 publisher websites
• Market grew 57% from 2008 – 2012 at average of 12% p.a.
• Different sectors use different techniques when using OPM
• Increased use and further innovation will encourage more growth


Big thank you

and all contributing companies


research@iabuk.net
0207 050 6969


Disclaimer

The IAB retained PricewaterhouseCoopers LLP (the UK firm) (‘PwC’) to compile the online adspend figures collected
by the IAB from its members in H1 2012 and to deliver to the IAB the topline figures collated from this review; PwC
has not verified the information which it received from the IAB, and provides no opinion or other form of assurance
with respect to such information.

This publication has been prepared for general guidance on matters of interest only, and does not constitute
professional advice. You should not act upon the information contained in this publication without obtaining specific
professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness
of the information contained in this publication, and, to the extent permitted by law, neither the Internet Advertising
Bureau UK (the ‘IAB’) nor any of the IAB’s contributors/subcontractors accept or assume any liability, responsibility or
duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information
contained in this publication or for any decision based on it.


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