A man writes a blog about cleaning chinchillas. One morning, he gets up and discovers that his blog has created a buzz, and regularly receives, say, 5,000 visitors a day. The blogger decides he can make money from advertising. In our Internet world where advertisers want to pay for results and not merely exposure, a website or blog (in our case) that can attract a focused target audience can flourish.
It’s astonishing to realize how easy it is for a blogger to make a little money from advertising. All he or she has to do is to go to the website that is a meeting place between advertisers and owners of advertising space, find a company whose ads suit the blogger’s target audience, download advertising material from the website (a link or banner), and attach it to the blog. If anyone clicks on the link, goes to the advertiser’s website and buys the product, the blogger will collect a commission.
This method of advertising, called “affiliate marketing”, is only possible on the Internet for two main reasons. First is the growing number of publishers. Almost anyone can create a website or blog, and although few people visit each site, they attract billions of visitors in aggregate. They are usually highly focused sites, very suitable for niche advertisers.
The second reason is that the Internet makes it possible to measure an ad’s success, which means that advertisers only have to pay for the success. Therefore, the advertiser does not care whether all comers try their luck advertising the product. The arenas that match the advertisers and affiliates generally collect a commission of $0.30 on each dollar, earned by the publisher. In this way, a network such as Commission Junction, the leader in the field, makes $130 million a year in revenue.
Over time, study scheme have also popped up in affiliates’ networks. Smart e-merchants have created portals for specific sectors with little content, but a lot of links to many advertisers in those sectors. Economies of scale mean that these advertisers can buy the relevant search words in Google. In this way, every time someone searchers for a chinchilla, he or she will arrive at a complete portal devoted to chinchilla products. Each time they buy something from any of the on-line stores, the portal owner will make a commission.
Kfir Moyal, 24, started out as an affiliate ten years ago, when he was 14. At that time, there were no affiliate networks, but isolated offers to place ads that came from advertisers (spammers who gave the sales pitch, “Make money effortlessly from your personal website.”) Moyal, who had a website for computer games, actually made money from his site, which whetted his appetite. He created a portal, and became a “super affiliate”. On the basis of these portals, he founded Cyhawk Media, a company of super affiliates in a range of fields. The company generated millions of dollars in revenue, while all that Moyal had to do was to periodically update the content and ads.
“Empire Online Ltd. (AIM: EOL) also began as a super affiliate in the gambling industry. It later became a partners arena in the field, before it began to provide its own content,” says Moyal. After founding Cyhawk when he was 19, Moyal wanted to expand.
“Globes”: What was the problem sitting at home making millions of dollars from Cyhawk? Why deal with all the running around involved in founding a new start-up?
Moyal: “I believe that CubeEffect can make tens to hundreds of millions of dollars.”
Moyal’s new idea is to develop software to manage affiliate networks. Most affiliate networks currently design their own software, which is a significant entry barrier into the field. One company, Direct Response Technologies Inc., markets software to networks using a payment for service model, the same model CubeEffect wants to use. “The common denominator among all its customers is their dissatisfaction,” says Moyal.
What do you do better than your competitor?
“One of our important advantages is that we built a search engine that automatically brings to every affiliate the advertisements that will make him the greatest amount of money, on the basis of the profile the affiliate created himself. Today, an affiliate picks ads himself, and they’re not always the most successful. In addition, we make possible work with much greater volumes, and our efficient content makes it possible to store the activity on far less servers. Our reports interface is also much easier to use.”
Next generation: Payment for exposure
CubeEffect was founded by Moyal and VP business development Noam Javits, who previously served as sales and marketing manager at super affiliate firm Enclip and human resources manager at Israeli medical devices start-up Visionsense Ltd. CubeEffect was founded with $500,000 in set-up financing from Cyhawk. A year ago, the company raised $1.2 million from private investors, including Nielsen BuzzMetrics chairman Itzhak Fisher. The company is now raising an additional $3 million.
The new investors bought in Hillik Nissani as CEO of CubeEffect. Nissani also started out in the affiliate marketing field at the age of 16. He later served as a department head at the IDF Computer and Data Communications Network Center; an e-marketer, and manager at Commet, a medical information start-up; a sales manager at Amdocs Ltd. (NYSE: DOX); and in recent years, worked at Tamir Fishman Venture Capital (TASE: TFVC).
CubeEffect is establishing itself as both a software company and as an affiliate network under the name “AdsMarket.com” which operates as an independent subsidiary in order to avoid conflicts of interest. Moyal is not ashamed to say that he is building a company for sale. “To do this, I need both a large volume of business that comes from the network itself, and high profits, which will come from the software,” he says.
CubeEffect also has the idea of creating a search engine that links up affiliate networks so that an advertiser and potential affiliate can simultaneously surf all available options. This product is especially important for new, small affiliate networks that few people visit.
Logically, in the end, there will be one affiliate network that dominates them all, no? What’s the advantage in a mass of networks?
Nissani: “Each network is managed slightly differently, because it specializes in a different field or type of customer. A network that specializes in gambling will operate differently from a network that specializes in consumer products. There are networks that have only large customers and affiliates. One leading network, Tradedoubler AB (SAX:TRAD), offers itself as an advertising agency for all intents and purposes, with media management consultancy services, creativity improvement services, and so forth.”
This brings us to CubeEffect’s next expected breakthrough. The company’s next-generation product will include a system that can manage not only affiliates, but also traditional advertising relationships in which a banner or link is displayed on a website, and payment is based on exposure.
Nissani says, “It is believed that payment for success will increase, but most large websites still use the payment for exposure method. We’re therefore also offering management of ordinary advertising relationships using the same interface.”
The next step is to bring the entire advertising world to affiliate networks, including advertising in the print media, radio and television.
Moyal says, “We’re building our network so that we can also support video and digital radio files. In the future, a newspaper ad will be managed by payment for success. An ad in "Globes" will include a special telephone number, and payment will be on the basis of a percentage of all sales that come through that number. The number can be downloaded from the affiliate network.”
To achieve this dream, CubeEffect will have to shake the advertising world’s foundations and anger a lot of powerful groups. The company is aware of the size of the task, but believes that, when the revolution comes, they’ll be there. Meanwhile, the company has good news for the Israeli market. “Israel has a lot of affiliates who work internationally, and has the potential for many more affiliates, but there’s no Hebrew-language network. We’re now negotiating with a leading Israeli media company to set-up such a network.”
Published by Globes [online], Israel business news - www.globes.co.il - on August 23, 2006
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