Previously in this blog I have argued that it was likely that we would see further consolidation the affiliate network space this year. The reasons for this are manifold and include.

• Increased pressure on margin from merchants
• Lack of diversification of publisher base
• Fewer new merchants entering the market
• The growing attractiveness of economies of scale

As been mentioned elsewhere and by me also, the affiliate business has been pretty static for the last 2 – 3 years. This has also meant that investors may have become more pessimistic (or others would say realistic) about the amount of return that they will receive for the stakes that they hold in networks. It is unlikely that such investments will again accrue in value at the rate that they did prior to current recession which did seem to blow a lot of froth off of the digital market.

Well yesterday (the 4th of May 2010,) this thinking appeared to bear some fruit when I received a news update suggesting that Axel Springer, the German media giant, might be considering a bid for my former employer, Swedish affiliate network and performance marketing specialists, TradeDoubler. To be honest I was rather surprised, firstly because I had always thought that TradeDoubler was too big to be swallowed up by market consolidation, and would more likely be the ones doing the purchasing than being purchased. Secondly, I focus perhaps rather too much on the UK marketplace, and having seen Axel Springer’s indirect purchases of both Digital Window and Buy.at didn’t think it likely that it would add additional acquisitions whilst still digesting those initial morsels.

This though is to take out of the equation Axel Springer’s initial foray into the affiliate marketplace, its purchase of German pan European network, Zanox. TradeDoubler’s strengths would be the ideal complement in many cases to those of Zanox, TD tends to be stronger where Zanox is weaker and vice versa. A purchase might seem to Axel Springer as an excellent way of ensuring predominance in the greatest number of European markets.

The fact though that Axel Springer are interested in TradeDoubler doesn’t meant that they will be able to develop this interest into an actual purchase, there are quite a few hurdles between thought and deed. Firstly TradeDoubler won’t want to give up independence. This is not like the mooted purchase by AOL some 3 years ago, TradeDoubler will not be expanding an existing business with no real competence in their marketplace, they would be merged into a competitor. Secondly TradeDoubler shares are way off what they were at 2 years ago, trading still about a third of their previous value. Thirdly, as a Swedish company 90% of the shareholders have to agree to sell, a pretty daunting number to get on your side.

So whilst I think that it’s unlikely that we will see the rise of the newly merged mega network @DigitalDoublers it is not entirely out of the question. As with the previous AOL bid, it will come down to TradeDoubler’s shareholders and their belief of whether this is the best valuation they can get or whether the network remains an appreciating asset. Whether this story progresses or not, I remain convinced that this year will see more consolidation in the market as a whole.

Rob, On-e.