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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".

Andrew Girdwood

Published 1 June, 2011 by Andrew Girdwood

Andrew Girdwood is Head of Media Technologies at Signal and a guest blogger for Econsultancy. He can be found on Twitter here.

41 more posts from this author

Comments (10)

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Alex

I +1 for "The rise of the reverse affiliate". We are makers of X-Cart PRO and we see increase in requests for "Etsy-like" configuration of our product over recent weeks. Many people are going to launch their own Etsy-like web-sites, but most of them are not backed up by good marketing program.

over 5 years ago

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Ken Aw

Hi Andrew, thanks for the article. Do you know of any software that we can use for this reverse affiliate model?

over 5 years ago

Matt Bailey

Matt Bailey, Commercial Director at Performance Horizon Group Ltd

Hi Andrew,

Good article and highlights an interesting growth area. However you seem to omit some prominent examples of this kind of activity.

The most obvious, of course, is eBay whose business is built upon this model. Add to this the Amazon Marketplace and ASOS Marketplace which launched last November.

I would steer clear of identifying this too closely with "standard" affiliate marketing as it is far too large a channel/model with significant differences.

Matt

over 5 years ago

Andrew Girdwood

Andrew Girdwood, Head of Media Technology at Signal

@Ken - I don't know any well enough to vouch for. Sorry. I'm sure they're around.

over 5 years ago

Andrew Girdwood

Andrew Girdwood, Head of Media Technology at Signal

@Matt I see your point. If you mention eBay in a blog post then the weight of the brand touches every other point you try and make. Not sure if eBay and Amazon have the community feel (perhaps I didn't stress that well enough) that Etsy and RedBubble, et al, have.

I suspect the term "Marketplace" might be a better descriptor for this area.

over 5 years ago

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Dan

Andrew,

Did you mean that you are a fan of Shanalogic's software platform? I'm sure you can't be referring to the tasteless old tat that they sell, produced by Indie 'artists' that would make my grandmother blush at how tawdry, sentimental and conservative their work is. I also doubt you could be referring to the tone of the marketing speak on the site either - cringeworthy stuff like calling a category Cute! Cute! Cute! Looking at the stuff they sell in that category makes me want to Die! Die! Die!

This is the basic problem with the internet and marketing. It's all form and no content, and these reverse affiliate sites are another perfect example of that principle.
Dan

over 5 years ago

Andrew Girdwood

Andrew Girdwood, Head of Media Technology at Signal

@Dan

No, it's the tasteless old tat that makes you want to die that I like :)

over 5 years ago

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Vicky

Scuse the ignorance, but what makes a designer selling their own goods either an affiliate, or for that matter, a reverse affiliate?
Aren't they just a merchant and the website selling their goods an agent (affiliate?) for them?!?
Please do shed light for me as I am confused!
Thanks
Vicky

over 5 years ago

Andrew Girdwood

Andrew Girdwood, Head of Media Technology at Signal

@Vicky - The "reverse affiliate" would be the platform on which the designer is selling their goods. The platform takes a chunk of the sale.

I picked the phrase reverse affiliate to illustrate the change in roles, how the CPA slice typically goes to the smaller player/website owner and the merchant makes the root profit - and how that position reverses in the marketplace.

You're right though, you could consider this as marketplaces and agents.

over 5 years ago

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Effie

Vicky's comment exactly mirrors my own.

over 5 years ago

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