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Why on earth would Larry Page suddenly shutter Google Affiliate Network (GAN)?

It appears bizarre at first glance, as this affiliate advertising powerhouse seems a natural complement to Google’s core internet search and display segments.

Plus, the money’s not bad either. I estimate GAN does $50MM to $150MM top line annually, with maybe 50% dropping to the bottom. So turning off $50MM in annual bottom line contribution takes cojones, I would think, even for the almighty Google!

So is Larry Page going nuts? Or does he see just things differently than I do?

It’s no secret that Larry, like the late Steve Jobs, is a champion of corporate focus. Since taking the reins at Google in April 2011, he’s wielded a conspicuous scalpel, whittling Google’s once-vast project portfolio down to a far more manageable — and core-affirming — handful. Just last month, he shut down the popular Google Reader service, and before that Google Wave, Google TV, and Google Labs, to name just a few. As Larry put it himself, his goal was to “put more wood behind fewer arrows.”

It seems Larry simply doesn’t view GAN as one of these worthy arrows, despite the apparent fit with Google’s broader online advertising strategy. So it’s bye-bye and R.I.P. to GAN.

But let’s speculate on additional reasons why Larry may have shut it down:

  1. Since inception, Google has been uncomfortable with the affiliate marketing business model. They’ve taken laudable steps to eliminate spammy content that pollutes search results (and gotten a lot better at removing this type of content!), but the broader affiliate model must still be discomforting to their core business.
  2. Having this issue (above), it’s more than a little schizophrenic for Google to own an affiliate network, isn’t it?
  3. The affiliate SaaS model has begun to disrupt the traditional network paradigm, as the growth of Impact Radius, HasOffers and other SaaS players has demonstrated. So perhaps Google saw the “writing on the wall” that legacy affiliate networks’ days are numbered.
  4. Hiring sufficient quality engineers to execute GAN’s numerous, ambitious, and high-value strategies must have been an ongoing source of concern to Google. Keeping an engine like GAN up and performing smoothly requires a small boatload of those–particularly if they’re working on a legacy/1990s codebase/architecture. Shutting down this engine frees up substantial engineering bandwidth, and advances Google’s goal of dominating Display Advertising, which it looks like they can. And that, my friends, is a multi, multi-billion dollar win for Google in the long term.

So the bottom line appears to be that Larry Page isn’t crazy, after all, and the decision to close GAN was probably a sound one. (Even though it will cost them $50MM+? for the next 12 months on the P&L.) However, I’m still very puzzled as to why Google didn’t sell the business. It must have been worth at least $250 to $500MM, and would have given their clients a far less convulsive transitional process.

Setting Larry Page’s thought processes aside, Impact Radius views the sale of GAN as a growth opportunity both for us and the broader SaaS/affiliate model. As GAN clients begin searching for alternative affiliate solutions, we’re confident many will be drawn to the economic benefits of our fixed-price SaaS model, to the service advantages of our Certified Agency partners, and to the technological superiority of our transparent, next-generation platform.

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