The rise of the reverse affiliate

Affiliate marketing is one of the stalwarts in the digital marketing landscape. It seems to benefit from change as much as it benefits from a lack of change.

For example, over the years CPM prices in non-premium inventory have dropped and yet CPA rates and network overrides have remained largely unchanged.

That has allowed some savvy arbitrage players, like lead brokers or performance agencies, to make a whack of cash. It has also contributed towards the rise of the reverse affiliate.

The normal affiliate model is straight forward. You begin with a merchant – a site with goods or services to sell.

There’s enough margin on these goods and services to allow that merchant to pay other sites a percentage of the total order value (rarely the profit, normally the order value) for every sale they generate.

This can be an attractive model for the affiliate as they are able to generate earnings without the bother of designing goods, wrestling with warehousing issues, returns and sundry other issues.

In the reverse affiliate scenario much of this is flipped around. Typically the “affiliate” is a designer and is selling their own products. In some cases, the “affiliate” is also dealing with warehousing, customer care, returns and the whole caboodle.

The website is the place where the goods are sold and it is common for the platform to take a percentage or a fixed cost as commission out of the basket value of each order. At this point it may be more appropriate to consider the website as the affiliate and the sole trader as the merchant although “trader” or “designer” both seem like better titles.

A leading example of this reverse affiliate example is Etsy. In 2010 Etsy completed its fifth round of VC funding, bringing on Index Ventures and gaining a valuation of around $300 million. Etsy is a community of designers and hand-crafters that sell items of their own design, that they have created themselves, on the marketplace powered by the shared technology.

Etsy is not alone. There are sites like RedBubble that provide a similar marketplace-meets-designer community or Craft.ly which is often described as the “UK’s answer to Etsy”. I’m a fan of Shana Logic as a site that brings together a whole bunch of indie artists into one handy shopping basket.

There are also sites like Zazzle, currently pushing for a strong international presence, which takes more responsibility for the physical product; offering talented artists the chance to sell their designs on t-shirts, gifts or even business cards and invitations.

The rise of reverse affiliates present new challenges. A growing problem is the reverse affiliate equivalent of a fake good. In this scenario the scammer buys a large number of commercially available good, items that look crafty or handmade, and then attempts to resell them as their own on the market platform.

Regretsy, a site that monitors Etsy for all sorts of howlers, has a good example with “Doris Handmade”. Doris posted to the forums to ask for help; no one was buying her handcrafted notebooks. The community chipped in to help until another trader, RuneLeather, discovered that all of Doris’ notebook stock was actually mass produced in China.

What happened next? Doris ducked her head back down behind the parapets and Etsy banned RuneLeather from the forums for the crime of outing someone publicly. People will challenge Etsy as to whether that situation was well managed.

Despite the challenges of the reverse affiliate business model it is easy to treat them as a valid threat to more established retailers. The most successful reverse affiliates are a single stop solution for shoppers wanting to find something unique, fairly priced, often ethically produced and all bought with the sense of transaction security of dealing with a big brand.

Photo Credit: Shana Logic and Claire Belton's "Sir Fancy Cat Tee".