Last week Epic (fka Azoogle) confirmed with Performance Marketing Insider that they were indeed closing down, unable to pay their publishers and affiliates. This would be the biggest failure of an affiliate network since COPEAC’s demise, leaving many people in the industry wondering what network would be next. Many affiliates are rightly concerned that these developments signal that other networks may be about to fail.
The stories about Epic are disconcerting: the staff of Epic including Matt Mirman, who basically ran the network, was completely left in the dark about the company’s future. The board of Epic never told them anything, but at the same time many of the top executives including Don Mathis, the former CEO, separated parts of the company to form a new entity called Kinetic Social, leaving many to believe they knew the time was near for Epic’s complete failure.
The same problems that plagued COPEAC eventually caught up Epic: they were owed tens of millions by non-paying advertisers and faced significant cash flow problems. As soon as publishers started talking about the issues, it was probably only time that they would be unable to survive. Without the cash flow from the other side of the business: the display and social, it was hard to save the company.
This comes only a few weeks after the announcement that Adteractive was going under, leaving many CPA networks with major unpaid bills.
Affiliates should be very concerned. Many networks are paying out before they are paid, have little cash reserves and worse, do not have a long-term business plan on how to make money besides brokering offers.
This is obviously part of the CPA game, but it’s a very dangerous game for those companies that have a few core advertisers and affiliates that support them.
What are the major issues plaguing the industry that will cause problems?
1) Enforcement Actions
The FTC has made it clear that networks will be held accountable for more and more things, including the actions of their affiliates. Combine this with more and more various State Attorney General actions, legal costs are going up.
2) New Credit Card Rules
Hundreds of offers have been pulled because of new rules about re-billing that go beyond weight-loss offers. Membership based sites that bill the credit card monthly, are facing strict new rules and many card processors will not give merchant accounts to these companies. This is one of the issues that caused Neverblue’s parent company to go bankrupt.
3) Education Offers Dying
The EDU industry was huge for almost a decade. New regulations by both the US Department of Education and the schools themselves, have made it almost impossible to promote EDU offers like they used to be. Several EDU companies have already bankrupted, and expect more.
Too many networks are desperate for unique offers without checking credit worthiness or doing basic background checks on companies. This means that they are working with companies that may not pay them, and then not be able to pay affiliates.
Who do you think will go out of business next?