Changing Affiliate Business Models
As most affiliates are aware, our industry is going through some dramatic changes. How we as affiliates adapt to this change will ultimately determine whether we succeed or fail.
In light of the recent happenings in the United States, the changing face of regulation in France and other European countries, it’s clear that current affiliate business models will need to adapt to our changing times.
Traditionally, gambling affiliates have opted for the revenue share commission model, which is well-known and lucrative. Commissions typically range from 20% to as high as 60%. As we all know, revenue share in our industry includes the lifetime of the player.
What does the lifetime of a player mean?
With that in mind, what exactly does “lifetime” of the player actually mean? It seems this definition can vary across affiliate programs. The pure nature of revenue share lends itself to a partnership where both parties share the risk and the reward.
The challenge with this is that our industry is constantly changing and these changes are usually factored into the revenue share agreements. So-called predatory changes in terms and conditions are all too common. Issues with cross marketing players and the issue with operators going bust due to processor seizures and various other challenges that face operators today.
As an affiliate, it becomes extremely difficult to operate in such a volatile environment. Each and every month presents new challenges and affiliates see their monthly revenues changing so dramatically while their cost base remains more constant.
CPA is on the rise
Revenue share is obviously not the only model being used today. The Cost per acquisition (CPA) model has been in use for sometime now and in view of the current changes, it’s our opinion that this model will start becoming more and more popular as our industry moves towards regulation and main stream media starts playing a more active role.
The CPA model does present its own advantages and disadvantages. One of its biggest advantages is that affiliates usually know exactly what their revenues will be each month and can more easily calculate their profitability on an ongoing basis.
Another advantage is that affiliates do not need to be concerned about the issues associated with revenue share arrangements discussed above and rather focus on driving traffic then having to worry about the operators ongoing issues.
From an operator’s perspective, margins are extremely tight these days and will get even tighter because of increasing tax rates and higher costs of doing business in a regulated framework. Having to share on average 30% of revenues with affiliates on an ongoing basis can create a situation where it’s not economically viable for operators to offer these types of revenue share arrangements.
A major disadvantage of CPA from an affiliates perspective is that affiliates might be missing out on their ongoing annuity income. For operators, the CPA model can be costly exercise and presents its own risks associated with return on investment, player value and the potential of CPA fraud.
Regardless of which business model is preferable for your business, there is no doubt that our industry is in a state of constant change and will still take some time to stabilize. During this time, affiliates must adapt and review their business models in order to survive.
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