| January 18, 2007 |
| What is an Affiliate Cookie Life and is Amazon's Too Short? (Part 2 of 2) - (Read Part 1 of 2) |
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In Part 1 of this post I described what an Affiliate Cookie is and what its lifetime means for affiliate sales. Clearly, as affiliates, we all want to have the longest possible affiliate cookie lifetime. That's because the longer an affiliate cookie lives, the more sales we are likely to make, especially from those customers who aren't very quick on the purchase trigger.
Cookie lifetime, however, is not the only metric that should matter to affiliates. Monetization of affiliate sites is a combination of 6 distinct metrics:
- Volume of traffic an affiliate site gets;
- Click-through rates on affiliate links: number of clicks from 100 page views;
- Conversion: number of products sold from 100 clicks;
- Cookie lifetime: the longer the lifetime, the bigger the conversion;
- Average selling price of products on the merchant site (assuming our compensation is driven based on % of sales);
- % of sales revenue paid to affiliates by the merchant site.
As you can see, affiliate compensation is only partly dependent on the cookie lifetime, so why do we experience so much angst when a merchant, especially Amazon.com, seems to offer such a short one? Amazon.com offers only a 24-hour lifetime of the affiliate cookie, while ToysRUs.com offers 14 full days and eBay offers 7 days. The reason for the displeasure with Amazon is based on our emotional judgment of what is fair and what is not. Certainly it does not seem fair that we drive a customer to Amazon who happens to make a purchase 2 days later and we do not get any credit for the sale.
Merchants look at this from a different angle. Their main question is whether they are monetizing affiliate sites as well as their competitors.
Merchant's primary goal is to get affiliates to generate traffic to the merchant site (which then result in sales) and pay affiliates a competitive compensation based on the traffic they generate. Since affiliates measure this monetization in terms of the effective CPM rate (or the amount of revenues the affiliate is paid based on 1,000 page views of their site), merchants believe that if they pay affiliates an effective CPM rate that is competitive, these affiliates will continue to generate traffic to the merchant. Affiliate should also look at it the same way.
Mathematically, the effective CPM rate is calculated as follows:
eCPM = 1000 impressions * Click-Through-Rate * Conversion Rate * Average Selling Price * % of sales paid in commission
Cookie lifetime is not a direct part of the above equation because it is already captured by Conversion Rate which is the number of products sold from 100 click-throughs to the merchant site. The better the cookie lifetime, the higher the Conversion Rate.
To the merchant, how each individual component compares to the competition is not as relevant as the final eCPM rate that affiliates receive. Merchants are able to manipulate any of the above levers that add up to the eCPM rate to ensure they are competitive. Thus, cookie lifetime is one and not an exclusive metric. The right questions for any affiliate to ask when comparing Amazon to ToysRUS (as an example) would be:
Q: Is it true that ToysRUs.com with its 14-day cookie lifetime will have higher conversion than Amazon.com with its 24-hour cookie lifetime? A: Not necessarily.
Q: Even if the longer cookie lifetime did give advantage to ToysRUs on conversion rates, is it automatically true that their Click-Through-Rates stay as high as Amazon's? A: Again, not necessarily. Click-Through-Rate is very dependent on the quality of the creative and various tools available to affiliates, and it is not necessarily true that the merchant with the longer cookie lifetime will have better creatives or even conversion.
As a result, focusing solely on the cookie lifetime is not the right way for the affiliates to determine the value of the merchant's affiliate program. All factors have to be considered:
- Merchant's creatives: the better the creative, the higher the click-through rate;
- Merchant's brand value: the better the merchant is recognized as a trusted, quality merchant, the higher the click-through-rate and conversion;
- How closely do merchant's products match the content of the affiliate site: the better the match, the higher the click-through rate and conversions;
- Size of merchant's catalog: the larger the catalog, the more likely someone will purchase something from the merchant, increasing conversion;
- Merchant's commission %: the higher the commissions, the more you will make from the same sale volume;
- Lastly, cookie lifetime.
Of the above factors, I argue that the cookie lifetime is the least important to monetization. Unless you are in a very specialized, niche market, the overwhelming majority of all sales on the Internet will happen in the first 24 hours. In case of Amazon, the sheer volume of its catalog leads people to make a purchase of something on their site, even products not directly advertised by the affiliate. These additional sales could easily more than offset the relative short timeframe of its affiliate cookie.
In summary, there are no clear top-level metrics which are single-handedly able to determine which merchant's affiliate program is better. Because of so many complex factors contributing to earnings, evaluating only the affiliate cookie lifetime is not the right way on which to base a solid business decision. Affiliates must focus on broad analytics of their campaigns and measure various programs to see which performs. In the end, successful affiliates are the ones who clearly understand their business and focus on successful campaigns as measured by their eCPM rates.
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Gene Kavner, Former World-Wide Director, Amazon Associates Affiliate Program, 2005-2006.
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