Commission Junction Revamping Policies to Cut Costs
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Affiliate marketer Commission Junction is changing several of its pricing policies and abandoning the pay-per-click model in a bid to reach profitability by the end of the year -- but the move may risk alienating partners.
Earlier this month, the company instituted a sizable change in its payment policies. Commission Junction makes money by billing advertisers -- e-commerce merchants -- a percentage of the commission they pay to publishers of their banner ads or text links, in return for referrals.
But beginning in July, the company will begin charging a higher fee for this service, raising the current 20 percent to 30 percent, with a minimum of $0.30 per lead or sale. Additionally, the company said it would no longer accept pay-per-click pricing as a payout option, and would discontinue the system in August.
"Driving traffic is not enough anymore, as pay-per-click programs do not directly provide the tangible ingredient fundamental to the success of every business -- new customers," Commission Junction chief executive Lex Sisney wrote in a letter to advertisers, obtained by internetnews.com. "This is our strength and we need to focus our business on delivering it better than anyone else."
The company requires advertisers currently running a pay-per-click program to convert to a pay-per-lead or pay-per-sale model by the end of July -- or to cease participation in the program altogether.
"We've previously offered all three: click, lead and sale," said CJ spokesperson Beth Mansfield. "We've just realized clicks aren't what the customers -- the advertiser -- really wants. They want lead or sale ... a conversion ... or they want to make a sale. Sure, clicks get traffic there, but they're not converting to leads or sales."
The two changes -- which both aim to boost CJ's revenue -- are the second major modifications to the firm's advertiser contract this year. In late January, Commission Junction increased its network access fee -- a one-time fee charged to advertisers to use the service -- to $1,295, a 60 percent increase.
With two major pricing changes in less than six months, the company's shifting strategy may risk provoking partners to shop around for different providers. However, CJ said it doesn't anticipate negative feedback since it's also rolling out a new service for publishers and advertisers.
That new service, dubbed Open Marketplace, displays the relative performance of advertisers (amount paid per lead or sale), affiliates (amount of revenue generated through leads or sales), and banners.
"What we've done at the same time [as the policy changes] is announce a new feature, the Open Marketplace," Mansfield said. "We're publishing performance metrics on both advertisers and publishers, and on individual ads in the network ... so they're seeing value in that."
The new reporting system -- which is open to current and prospective advertisers and publishers -- is aimed at helping advertisers find the best places to spend their affiliate dollars, according to the company.
"It's instead of advertisers and publishers doing deals a little blindly, with publishers not sure what they're going to get in revenue, and [potential] advertisers not [having] a clear understanding of what ad prices are or commission rates," Mansfield said. "Now they're going to see it."
But therein lies the problem: there's a good chance that publishers might object to seeing their data shared openly with competitors. However, they have little option -- CJ's 1,800 advertisers and 400,000 publishers must agree to have their metrics shown in the Open Marketplace to remain in the program.
Clearly, Commission Junction is willing to chance the possibility of an exodus by publishers. The company -- like others in its space -- is stumbling toward profitability, with officials reiterating estimates of positive cashflow in fourth quarter. (The firm cut 37 percent of its 160-person workforce last week, and began shutting down four of its five international offices.)
And like the other policy changes, Open Marketplace is geared toward boosting bottom-line performance, in this case by weeding out less-profitable advertiser-affiliate relationships. That is, as publishers gravitate toward advertisers offering larger commissions, lesser-performing clients are likely to either drop out of the program or boost their commissions -- also increasing CJ's cut.
CJ also gains by pushing out costly advertisers who use the system as little more than an inexpensive an ad network like DoubleClick -- taxing the company's technical resources while producing little revenue.
As a result, Commission Junction essentially is gambling that the program will increase revenue per advertiser by eliminating all but the largest spenders, while keeping most of its publishing base. While Mansfield didn't say that the Open Marketplace necessarily was intended to weed out smaller clients, she did admit that such a purge was a likely side-effect.
"The most effective relationships will become more effective," she said. "It is one of the risks, but ... it will be giving advertisers and publishers the way to make their best determinations of 'is this relationship going to be beneficial to my site?'"
"And we really think the best marketers will realize that ... and they'll see even more profitable results," she added.
But despite the renewed push to reach profitability, Sisney described Commission Junction's new initiatives as coming not from an effort to shore up the company, but from a desire to maximize advertisers' revenue opportunities.
"We realize that introducing these changes will cause you to re-examine the results you want and expect from your affiliate marketing relationships," he wrote. "But in the end, those same changes will positively impact your ability to get what you want from both our business and yours."
"Our business remains strong. While other ad networks have experienced financial difficulty, we have continued to experience considerable growth, adding blue-chip names to our roster and powerful new features to our system," he continued. "And now, more than ever, Commission Junction is equipped to make your affiliate marketing relationships even more powerful, proactive, and productive."