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Affiliate Subnetworks: From Proving Grounds To Growth Essentials

Mar 7, 2023 by Jim Nichols

Key Takeaways

 

  • Subnetworks play a significant role in the affiliate industry, driving 12% of commissions in the U.S. They are the fourth largest source of traffic for brands, behind only the cashback, coupon, and content publisher segments.

 

  • Historically, subnetworks enabled brands and publishers to conduct proof of concept tests for the affiliate channel without making major investments. Many major brands and publishers relied on subnetworks for their first affiliate efforts as they enabled rapid scaling with minimal internal investment.

 

  • Highly successful subnetworks faced a paradox of success. Strong results pleased brands and publishers but prompted some to build direct relationships with their counterparts to cut out the subnetwork middleman. In response, the subnetwork model had to evolve to create new forms of value for advertisers and publishers.

 

Subnetworks have been part of digital marketing and the affiliate ecosystem from the beginning. According to the recent PMA study of the affiliate industry, they now represent the fourth largest publisher sector by revenue, garnering 12% of total commissions in the U.S. Only cashback communities, coupon sites and content partners attract more revenue. 

While subnetworks are nothing new for affiliate, the characteristics of a successful subnetwork and its role for brands and publishers have changed as affiliate has grown into a primary go-to-market channel. Let's examine the origins of subnetworks, their traditional value proposition, and the forces that have contributed to their transformation in recent years.

What are Subnetworks?

 

A subnetwork is a business that represents a group of publishers interested in generating revenue through performance deals with brands. 

  • Publishers outsource all aspects of creating a performance marketing revenue stream to the subnetwork. They gain incremental advertising dollars by capitalizing on the relationships the subnetwork builds with advertisers. They capture this revenue without significant internal investments in technology or people to manage the revenue stream.  

 

  • Brands gain a one-stop shop to access the audiences of many publishers. Instead of cultivating relationships with many affiliate partners, they can focus on a single at-scale relationship. This means they can devote far fewer resources to the channel and still drive sales at scale. 

 

Subnetworks typically partner with multiple affiliate networks to gain access to more advertisers, and their budgets. Affiliate networks generally want to work with every major subnetwork available so they can offer the greatest range of options to brands and their affiliate marketers. 

Subnetworks often leverage standard affiliate-style placements like an affiliate link and graphical placements to drive traffic and conversions. Sometimes, subnetworks specialize in other units, like hyperlinking keywords in editorial to redirect readers to available products and services. They may also aggregate inventory across a specific placement type, like OTT video ads.

People often talk about vertical versus horizontal subnetworks. A vertical subnetwork aggregates inventory for a specific interest area, ad format, or target audience. A horizontal subnetwork aggregates inventory across various topics and audiences, though they may organize content into channels advertisers can purchase individually. Some advertising agencies have also created their own smaller affiliate networks and subnetworks to deliver better value to advertisers and publishers.

In exchange for managing multiple brand and publisher relationships, subnetworks take a cut of commissions generated by traffic from the affiliate partners they represent. That cut from the total commission for the traffic source varies by subnetwork and the size and quality of the publishers and brands it represents. Further, many subnetworks can segment commissions by the size and type of publisher. For example, if a brand offers different commission rates to deal sites and content publishers, the subnetwork can compensate publishers appropriately according to those guidelines. 

 

Origins: Subnetworks as Channel Proving Grounds

 

The “network” model is not unique to affiliate. All digital media networks enable brands to access a broad range of publishers through a single point of contact. CPM banner and video ad networks dominated the digital media business for years until the programmatic platforms disintermediated those advertiser-publisher relationships. 

Brands leverage affiliate subnetworks to advertise on sites that attract quality audiences, but aren’t geared to performance marketing models or might be too small to warrant an individual brand relationship but attract a relevant audience. 

When subnetworks first appeared in affiliate, they played an essential role as “proving grounds” for advertisers and publishers interested in testing performance marketing and capturing a secondary revenue stream. By working with a subnetwork, an advertiser conducted business with one entity while enjoying the benefits of broadscale offer distribution. Using a subnetwork reduced or eliminated the need for internal resources to establish and manage an affiliate effort. It could also help drive scale faster versus growing a program organically – relationship by relationship. 

On the supply side, many of the world’s largest publishers leveraged subnetworks to establish a performance revenue channel as they focused primarily on CPM-based monetization. 

Subnetworks gave major mainstream content publishers a means of determining whether performance-based media was scalable. They could gain revenue from quality advertisers without incurring the expense and complexity of creating an infrastructure for an unproven channel. They could also capture performance dollars while avoiding the potential conflict of directly offering performance media when they strongly preferred to sell CPM-based media.

Over time, the number of premium publishers using subnetworks grew. For example, on its website, top subnetwork Skimlinks boasts relationships with Conde Nast, Hearst, Daily Mirror, and Daily Mail. These brands are an excellent draw for advertisers who want to ensure their affiliate program delivers a positive impression. Their association with top content brands convinced many that these site aggregators could provide the highest quality inventory. 

Subnetworks were one of the earliest ways advertisers explored increasing their partnerships with content sites. Their association with top publishers also helped top subnetworks justify CPAs often a little higher than those from traditional affiliates like cashback, coupons, and comparison sites. 

 

The Downsides of Legacy Subnetwork Relationships

 

In their first iterations, subnetworks had positive and negative traits for participating publishers and brands. While the cost and time savings were evident for both brands and publishers, working with subnetworks also created challenges. Early subnetworks delivered scale but generally did not offer transparency to advertisers. As a result, brands often didn’t know the specific sources for their subnetwork traffic. They might think their traffic was coming from brands like Vogue and Esquire when in reality, much of it came from publishers they had never heard of – and often wouldn’t have approved. While some subnetworks were meticulous about vetting publishers and policing activities across the media they represented, others had few or no standards. This created brand safety problems

Even when subnetworks tried to deliver only high-quality publishers and traffic, some less scrupulous publishers created “sub-sub-networks” without anyone’s knowledge. They told the subnetworks they were providing all the traffic themselves while secretly farming out creative offers to other sites. This opened up significant opportunities for click and other forms of fraud and created enormous compliance challenges for highly regulated industries like personal finance. Over time, advertisers demanded greater subnetwork transparency to trace each attributed click's origin. 

The Paradox of Great Subnetwork Performance 

 

For the subnetworks, outstanding sales performance created a paradox in their relationships with large, high-quality publishers. Driving substantial revenue made publishers happy but sometimes raised questions about whether they should continue outsourcing the channel. If they could make this much money with a middleman taking much of the profit, imagine what they could make if they went brand-direct! 

While many large publishers continued to leverage subnetworks, some created internal partnership teams to bypass the subnetworks and partner directly with top brands. This strained the subnetworks because they had less access to high-quality inventory. Additionally, many publishers tried to work with multiple subnetworks to maximize revenue. While some subnetworks have sufficient market power to demand exclusivity, others offer access to the same venues as their competitors. That created strong downward margin pressure. 

Subnetworks often drove higher costs per action than direct brand-publisher relationships. As brands grew more data-savvy, there was increasing pressure on subnetworks to deliver sales at a competitive price. To compete, some subnetworks quietly expanded the number of small, niche publishers they worked with to bring down achievable CPAs. More niche sites helped subnetworks deliver lower CPAs and made them less desirable from a quality standpoint.

The Demise of Channel POCs

 

In the early days, subnetworks relied on a steady stream of brands interested in testing the scalability of affiliate marketing. But, over time, that market has largely disappeared. While industry figures vary, most studies report that 80-90% of brands already have affiliate programs. The number of brands interested in testing affiliate these days is relatively small.

On the publisher side, the channel had a similar maturation. Years ago, mainstream publishing brands relied on subnetworks to supplement their CPM-based advertising business with performance revenue. It was a way to participate in affiliate growth without resourcing the channel. Over time, performance deals have become a more critical element of their monetization programs. Today, many leading publishing houses have created internal performance teams to accelerate revenue from performance partnerships and boost their profitability. 

These forces have created enormous pressure on the subnetwork space to evolve and create additional sources of value beyond easy access to brands and publishers. Subnetworks have evolved considerably to meet these challenges, and many continue to prosper. 

 

More Coverage of Subnetworks

Pubs Choose Subnetworks for Data-Driven Insights Say Webinar Panelists

Brands See Benefits – and Challenges – with the Subnetwork Ecosystem

Subnetworks Utility Shifts from all in one Solution to Strategic Tool.