value creation
Mar 23

Value Creation & Cannibalization

Anyone familiar with affiliation (sending a customer to a website and receiving a commission) typically think of price comparison sites or aggregators. Think of SkyScanner who compare flight prices or MoneySupermarket who do car insurance and lots of other things.

It’s impossible to deny that these businesses are incredibly successful, but as an affiliate it’s important to ask yourself: Are we really helping our partners make more money?

If we are not, we cannot expect our business to last forever. Our partners will eventually stop paying us, if they can achieve the same results without us.

I am especially thankful to the online gaming industry as it taught us about why generating real value was so important, very early on. In fact, many companies in other industries are still behind where the gaming industry was in 2010 – they are paying websites to give them their own customers – This is known as cannibalization.

Example: I am interested in ordering a Dominos Pizza. I like Dominos because of their product (the pizza), their marketing and because my only other choices are PapaJohns or PizzaHut. I’ve ordered Dominos before and know their brand. Instead of going directly to Dominos, I decide to Google ‘Dominos Voucher Codes’ and find lots of ways to get my order for a little bit cheaper without any effort.

Dominos will pay the website a small commission for ‘referring’ me to them and generating business. Does the website deserve this commission? No. Quite the opposite – This website is actually damaging Dominos. They might expose me Dominos competitors, they have eroded Dominos profit margins and next year, instead of investing in better cookers or a new TV campaign or a better website, someone in Dominos management might actually believe that they need to go harder on affiliate marketing – whereas the opposite is true!

In our original industry cannibalization was even more crude and this is probably why it was caught out a lot sooner.

Instead of going directly to a site (Let’s say William Hill) to make a bet or play poker, some prospective customers would type in “William Hill Deals” and find a way they could get the same product, at a much better price – usually because the affiliate was kicking back some of the commission.

Although, such models might offer relatively easy short term money, it is difficult to build a brand with longevity if your entire product depends on “Special Deals” that your partners can take away at any minute. Of course this does not mean that it’s wrong to offer a financial benefit to your users if you’re an affiliate, but your business should not live and die by this – It’s a weak model and your only hope of long term survival is to become the biggest aggregator in town and hope that no partner is brave enough to challenge you.

What will happen to SkyScanner if some of the airlines decide to stop paying commission? They will be faced with a horrible decision: Do we let the quality of our product diminish and stop listing these airlines? Or do we accept that some airlines stop paying us commission and hope the others do not follow? SkyScanner are not the reason you fly, they are a service you use when you fly.

We realized that if we wanted to be in the business for the long run, we had to add value. Regardless of special deals, we needed to give the user’s that visit our sites something extra.

At PokerVIP for example, we help people learn to play online poker, there is a community where they can get advice, there are coaching videos and our support team can even advise the best poker site for you to play at given factors like your location, experience level and games you play. Even if a poker website no longer wants to work with us, users will continue to visit PokerVIP for the above reasons and more.

All of our products are built with this ‘value creation’ in mind. If we can find a way to introduce people to a subject they are interested in, help them enjoy it more and improve their experience, we have a magic formula. This idea is not limited to poker, and could even be used for niches like cooking, investment, in addition to the current sectors we already operate in.

Although this post has spoken about value from the perspective of our partners and big companies who effectively buy a portion of their revenue like Dominos, we should not lose sight of who the added value is really meant to serve – The customer.

You can achieve value for your customer by being passionate about your product or service and really going that extra mile. If someone is interested in learning to cook, if you offer the most accessible guides and methods of learning, users will thank you for it, your product will grow and your business will be strong.

Whether it be improving their experience, making cooking more enjoyable, helping them do it more often or actually getting new people who were previously on the edge to jump in and give cooking a go – You should always think about the idea of value in all walks of life. You will begin to see things differently and hopefully see the tangible results in your business.