Is the Model Broken?
The CPA network space has started the year off with a bang. The trouble being that it isn’t necessarily a good bang. One storied network has fallen and the buzzards are swirling around another. On the surface their troubles seem so simple; they go like this. They floated too much money. They relied too heavily on a handful of advertisers. They didn’t exercise enough caution in which types of offers and what types of publishers they allowed into the network. There was a major fail point, so if one piece broke the entire system was put under pressure. And, the system did break. The continuity advertisers were hit hard by the merchant processors. The traffic suppliers were targeted for extinction by the major choke points, which left the networks having paid suppliers already while the payments to them were now in jeopardy from the end advertiser. Like doubling down on a hand, it could and did in many cases turn bad fast.
Well and Good
Perhaps the bigger question is how did we get here? For a business model and process that has thrived for so long, why does the future seem less certain now than ever before, where now is a time of almost unrivaled tech optimism and growth. Yes, there are companies in the cpa space doing impressively well. The real question is are they really? Are they doing well or are they making money? While the two sound synonymous, we’d argue that they are very different. Within that distinction lies a way to think about not just the cpa network space today but back to the main question of why is the cpa space acting slightly counter-cyclical to the rest of the advertising world. We’ve seen this play out before. The biggest difference is that it didn’t impact the performance world then.
A Look Back
Were we to try and highlight some of the different eras of internet advertising, we would probably start with bubble 1.0, i.e., that period of intense activity that ended in early 2001. The next period from 2002 – 2008 was a time of rebuilding and a wildly successful one for cpa networks and performance marketers. Faith in online advertising had shattered. Those able to offer up this new medium on a risk free basis alleviated the fear those who didn’t enter had and the bad taste left by those who got burned. Google made it easier to buy and relative scarcity of other advertisers meant the spoils went to those who didn’t sit on the sidelines.
It was around 2008 that things changed for the world at large but not immediately for the cpa world. In 2008 you had rumblings about this thing called Facebook. You had MySpace causing everyone to think about social media, as well as this computer and music player company that decided to launch a really innovative phone. Add to that the start of a whole new way to buy the oldest form of media, and things started to look very different.
The Big Shift
Almost overnight, the conversation at large changed. Before social and mobile, making money mattered. Understanding online and how to make money mattered. That started to change. A company that could make money no longer looked as interesting. All of a sudden, companies weren’t being evaluated on their ability to make money. They were being evaluated on how they played within this new ecosystem. “Oh, you made $150mm last year. Did you make any of that in mobile? Do you have a social strategy? As if that weren’t enough, suddenly the conversations became about platforms and API’s. If your business didn’t include using others’ APIs or creating API’s for others to use, it was as though you didn’t matter. It quickly became a world of apps, a software revolution that rivals if not tops the days of the personal computer.
This shift is why the traditional cpa model has struggled. By the end of last year, even if the FTC had not cracked down on acai, the space would still be at a crossroads. It would still be facing what it is today, which is an increased focus on performance based advertising by those spending money, except those asking about performance are brands. They haven’t turned to the cpa world for help but to sales driven agencies who have sold them overpriced likes and followers in the name of performance.
Our cpa world is not dead by a stretch, but it is worth concluding on some final observations. Those doing well today have tried to create something. They are platforms like HasOffers or vertical specialists that go deeper into a vertical. Or, they might go deeper into a traffic expertise. They might combine traffic expertise with an intense focus on sales. Regardless, they are more public. They aren’t just in the back doing day trades. If they are, they are no longer trading as heavily on the pre-existing markets. For the cpa players, it’s a story they have told and heard before, but now they must actually do it. They must bring expertise in-house. Being just a bank is not a good business to be in anymore.
