Affiliate Marketing’s core value proposition has been working with “third parties” to access new customers. However, this means a high dependence on outside actors for client growth. Are there ways affiliate practitioners can better vertically integrate their services?

AM2.0 #7 Ideas for Vertical Integration

It’s been a while, subscriber fam 🫡 

To refresh your memory, we were deep in demand strategy in the previous issue and discussed the most significant pain point in affiliate marketing.

In this issue, I want to suggest ways for affiliate marketers to better vertically integrate their services.

What is Vertical Integration?

Vertical integration is a concept that typically refers to the supply chain or distribution process for companies with physical goods.

When companies vertically integrate, they own or take in-house the supply chain or distribution processes previously managed by third parties.

When a company owns parts of the supply chain (instead of using a third party), it’s called backward integration.

When a company begins to own some of its distribution and retail, it’s called forward integration.

Examples of Vertical Integration

Here are some examples of vertical integration to help you clearly understand the concept.

Backward Integration

• Apple: Apple designs its processors for iPhones, iPads, and Macs. By developing the chips (rather than relying on third-party suppliers like Intel), Apple gains control over performance, energy efficiency, and the innovation pipeline for its devices.

• IKEA: To maintain quality and control over raw materials, IKEA bought forests in Romania and the Baltics to source sustainable wood for its furniture. This backward integration secures IKEA’s wood supply, stabilizes costs, and supports sustainability goals by controlling how the wood is harvested.

Forward Integration

• Disney: Disney is a classic example of forward integration. Originally, Disney created and licensed its content to third-party theaters and TV networks. However, by launching its own streaming service, Disney+, it now distributes its content directly to consumers. This enables Disney to control the customer experience, gather viewer data, and maximize revenue from its popular franchises.

• Amazon: Amazon’s investment in its own fleet of trucks for distribution is another example of forward integration. By building its own logistics network—including trucks, planes, and even delivery drones—Amazon has reduced its reliance on third-party carriers like UPS, FedEx, and USPS for last-mile delivery and regional distribution. This move allows Amazon to gain greater control over shipping times, costs, and customer service standards.

Benefits of Vertical Integration

The world's most prominent companies—Disney, Tesla, Amazon, and Ikea—have all implemented vertical integration in some way.

Why would they do that? What benefits do companies derive from this implementation?

Alright, I get it; vertical integration sounds like a cool business idea.

How does that apply to affiliate marketing, though?

This is an affiliate marketing newsletter, isn’t it?

Third parties are Catch-22 Relationships

Arguably, one of affiliate marketing’s most significant strengths is also one of its most significant weaknesses.

Affiliates are third parties who offer a third-party perspective and act as third-party independent operators.

On the one hand, third parties are great—they bring new perspectives, social proof, the ability to engage with new audiences, and even help you reach more considered shoppers via SEO and SEM searches.

The problem is that because affiliates are independent parties, agencies become highly dependent on them for client performance.

This is doubly the case, as affiliates control aspects of the supply chain (traffic/audience) and distribution (content).

In other words, affiliate agencies may need improvements in backward integration in their supply chain and forward integration in their distribution to have a better control over client performance.

Common Challenges for Affiliate Marketers

What are some common challenges that affiliate marketers encounter because of their dependency on affiliates?

Do any of these sound familiar?

Communication:

• No response

• Response delays

• Not knowing when content is going to be posted or something will be updated

Transparency Issues:

• Not understanding where traffic or sales are coming

• Not understanding how promotions are being done

Time Delays:

• Delays in communication or waiting on promotions

Inflated Commissions:

• More brands working with affiliates means commission inflation

• The best affiliates (and positions) are very costly

Variable Performance:

• Sudden changes in performance as affiliates’ traffic changes

• Affiliates change your ranking

Fraud & Brand Integrity

• Promoting in ways that don’t align with brand integrity

• Explicitly promoting in nefarious or fraudulent ways

Backward and Forward Integration in Affiliate Marketing

So far, it has been established that affiliate marketing has various chokepoints because of third-party dependency.

Examples would be communication challenges and time delays.

Affiliate marketers are not alone in facing operational challenges with third parties.

Companies like Apple and Disney vertically integrate their supply chain or distribution to solve chokepoint issues, a process called backward and forward integration.

For affiliate marketers to better understand and remediate service chokepoints, it’s crucial to establish whether they are on the supply (backward) or distribution (forward) side.

Backward Integration (Supply Chain)

Arguments can be made that affiliate partners are the supply currency for affiliate programs.

Or even that compelling offers are.

In my opinion, the traffic affiliates bring is the actual resource on the supply side of the affiliate marketing industry.

That means third-party traffic sourcing is part of the problem that affiliate marketers face.

If traffic is the resource in affiliate marketing, like processors are for the Apple iPhone, then agencies would benefit from being able to self-generate traffic in some way.

Forward Integration (Distribution)

The potential bottleneck on the forward integration/distribution side is content deployment.

For instance, you started working with a new client and have a trusted content publisher who wants to write a dedicated brand or product review.

However, they have an editorial process of testing the product and publishing a review.

Of course, any review has to go through a QC process, too.

You get the point…

Again, the fact that content deployment is at the discretion and time expectations of third parties can present challenges for affiliate marketers.

It would be easier for affiliate marketers if they could more reliably control the distribution of content.

Ideas for Vertical Integration in Affiliate Marketing

If traffic and content distribution are the two primary chokepoints in affiliate marketing, finding solutions would involve self-generating traffic supply and controlling content distribution.

Traffic (Backward Integration)

Owned Media Properties

Owning media properties like TikTok channels, podcasts, YouTube channels, review sites, and email lists helps avoid dependency on third-party affiliates and traffic supply.

You can even leverage some of these properties, like review sites, to push paid SEM traffic through or whitelist.

Content Distribution and Campaign (Forward Integration)

Build Content for Affiliates

Whether it’s written, video, audio, or another format, pre-prepared content can help speed up affiliates' distribution process.

Build Landing Pages

Having landing pages and advertorials pre-made can streamline the promotional process as well.

Share Data

Sharing data from previous internal campaigns can help inform and speed up affiliate campaigns.

Examples include previous spending, CPAs, AOVs, and audience targeting for specific campaigns.

Distribute through Owned Media Properties

If you own media properties like review sites, social media channels, or influencer accounts, you can use them to distribute content.

For example, I can generate content and post it immediately if I have a small tech blog and work with electronics products.

Or, share an unboxing experience via my electronics Instagram account, and so forth.

Closing Thoughts

As always, having a client budget makes traffic easier to acquire and content distribution easier to secure.

Leveraging flat fees, CPC commissions, and other levers can also help alleviate some of affiliate marketers' chokepoints.

However, affiliate marketers should seek solutions for both backward and forward integration, as third-party affiliates are essential to client success.

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