Affiliate marketing

Way of promoting web businesses (merchants/advertisers) in which an affiliate (publisher) is rewarded for every visitor, subscriber, customer, and/or sale provided through his/her efforts.

Affiliate marketing is also the name of the industry where a number of different types of companies and individuals are performing this form of internet marketing, including affiliate networks, affiliate management companies and in-house affiliate managers, specialized 3rd party vendors and various types of affiliates/publishers who utilize a number of different methods to advertise the products and services of their merchant/advertiser partners.

Affiliate marketing overlaps with other internet marketing methods to some degree, because affiliates are using the same methods as most of the merchants themselves do. Those methods include organic search engine optimization, paid search engine marketing, email marketing and to some degree display advertising.

Predominant Compensation Methods in Affiliate Marketing
81% of affiliate programs today use revenue share (Cost per sale) as compensation method. The remaining 19% use Cost Per Action. .

Diminished Compensation Methods
The use of Pay per click and Pay per impression (CPM) in traditional affiliate marketing is far less than 1% today and negligible.

CPM requires from the publisher only to load the advertising on his website and show it to his visitors in order to get paid commission, while CPC requires one additional step in the conversion process to generate revenue for the publisher. Visitors must not only made aware of the Ad, but also pursue them to click on it and visit the advertisers website.

CPC used to be more common in the early days of affiliate marketing, but diminished over time due to Click fraud issues that are very similar to the click fraud issues modern Search engines are facing today.Contextual advertising, such as Google AdSense are not considered in this statistic. It is not specified yet, if contextual advertising can be considered affiliate marketing or not.

Compensation Methods For Other Online Marketing Channels
Pay per click is predominant as compensation model for Pay per click search engines and their contextual advertising platforms, while Pay per impression is the predominant compensation model for display advertising. CPM is used as compensation method by Google for their AdSense/AdWords feature "Advertise on this website", but an exception in search engine marketing.

While search engines only recently started experimenting with compensation structures of traditional affiliate marketing, such as Pay per action/CPA [3], they did display advertising, offering CPA as early as 1998. By the end of 2006 did the share of the CPA/Performance pricing mode (47%) catch up with the CPM pricing mode (48%) and will become the dominant pricing mode for display advertising, if the trend of the last 9 years will continue in 2007 [6].

CPM/CPC versus CPA/CPS (Performance Marketing)
In the case of CPM or CPC, the publisher does not care if the visitor is the type of audience that the advertiser tries to attract and is able to convert, because the publisher already earned his commission at this point. This leaves the greater, and, in case of CPM, the full risk and loss (if the visitor can not be converted) to the advertiser.

CPA and CPS require that referred visitors do more than visiting the advertisers website in order for the affiliate to get paid commission. The advertiser must convert that visitor first. It is in the best interest for the affiliate to send the best targeted traffic to the advertiser as possible to increase the chance of a conversion. The risk and loss is shared between the affiliate and the advertiser.

For this reason affiliate marketing is also called "performance marketing", in reference to how employees that work in sales are typically being compensated. Employees in sales are usually getting paid sales commission for every sale they close and sometimes a performance incentives for exceeding targeted baselines [7]. Affiliates are not employed by the advertiser whose products or services they promote, but the compensation models applied to affiliate marketing are very similar to the ones used for people in the advertisers' internal sales department.

The phrase, "Affiliates are an extended sales force for your business", which is often used to explain affiliate marketing, is not 100% accurate. The main difference between the two is that affiliate marketers cannot, or not much influence a possible prospect in the conversion process, once the prospect was sent away to the advertisers website. The sales team of the advertiser on the other hand does have the control and influence, up to the point where the prospect signs the contract or completes the purchase.

Multi Tier Programs (and Affiliate Marketing is not ...)
Some advertisers offer multi-tier programs that distribute commission into a hierarchical referral network of sign-ups and sub-partners. In practical terms: publisher "A" signs up to the program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A" attracts other publishers ("B", "C", etc.) to sign up for the same program using her sign-up code all future activities by the joining publishers "B" and "C" will result in additional, lower commission for publisher "A".

Snowballing, this system rewards a chain of hierarchical publishers who may or may not know of each others' existence, yet generate income for the higher level signup. This sort of structure has been successfully implemented by a company called Quixtar.com, a division of Alticor, the parent company of Amway. Quixtar has implemented a network marketing structure to implement its marketing program for major corporations such as Barnes & Noble, Office Depot, Sony Music and hundreds more.

This is not considered affiliate marketing. Two-tier programs exist in the minority of affiliate programs; most are simply one-tier. Programs beyond 2-tier are not considered affiliate programs, but rather Multi-level marketing (MLM) or network marketing.

Even though Quixtar compensation plan is network marketing & wouldn't be considered 'affiliate marketing', the big company partners are considered and call themselves affiliates. Therefore, you may argue that the Quixtar company is the affiliate marketer for its partner corporation.

Affiliate Marketing History

A Brief History of Affiliate Marketing
This is an excerpt from the book "Successful Affiliate Marketing for Merchants" written by Shawn Collins of AffiliateTip.com and Frank Fiore[8], which describes how affiliate marketing on the Internet came into being.

“ As the story goes, affiliate marketing all started at a cocktail party. Jeff Bezos, CEO and founder of Amazon.com (www.amazon.com), was chatting with a party guest who wanted to sell books on her web site.

This got Bezos thinking. Why not have the woman link her site to Amazon’s and receive a commission on the books that she sold? Soon after, Amazon introduced the "Amazon Associates Program". It was a simple idea. Amazon associates would place banner or text links on their site for individual books or link directly to the Amazon’s home page.

When visitors clicked from the associate’s site through to Amazon.com and purchased a book, the associate received a commission. With that thought, Bezos created Amazon.com’s affiliate program in July 1996.

But Amazon wasn’t the first company to initiate an affiliate program. According to Brad Waller, VP of affiliate and business development for EPage (www.epage.com), the affiliate program for EPage started in April 1996. As documented in “The CDNow Story: Rags to Riches on the Internet,” CDNow’s affiliate program predates Amazon’s by more than a year.

In November 1994, almost a full year before Amazon.com even launched its web site, the venerable CDNow (www.cdnow.com) began its buyweb program. With its buyweb program, CDNow was the first to introduce the concept of an affiliate or associate program with its idea of click-through purchasing through independent, online storefronts.

It worked like this.

CDNow had the idea that music-oriented web sites could review or list albums on their pages that their visitors might be interested in purchasing and offer a link that would take the visitor directly to CDNow to purchase them. The idea for this remote purchasing originally arose as a result of conversations with a music publisher called Geffen Records (www.geffen.com) in the fall of 1994. The management at Geffen Records wanted to sell its artists’ CDs directly from its site but didn’t want to do it itself. Geffen Records asked CDNow if it could design a program where CDNow would do the fulfillment.

Geffen Records realized that CDNow could link directly from the artist on its Web site to Geffen’s web site, bypassing the CDNow home page and going directly to an artist’s music page. By linking Geffen Records to CDNow, the affiliate marketing format was born.

Historic Development of Affiliate Marketing
Affiliate marketing has grown quickly since its inception. The e-commerce website, viewed as a marketing toy in the early days of the web, became an integrated part of the overall business plan and in some cases grew to a bigger business than the existing offline business. According to one report, total sales generated through affiliate networks in 2006 was £2.16 billion in the UK alone. The estimates were £1.35 billion in sales in 2005. MarketingSherpa's research team roughly estimates affiliates worldwide will earn $6.5 billion in bounty and commissions in 2006. This includes retail, personal finance, gaming and gambling, travel, telecom, 'Net marketing' education offers, subscription sites, and other lead generation, but it does not include contextual ad networks such as Google AdSense.

Currently the most active sectors for affiliate marketing are the adult, gambling and retail sectors. The three sectors expected to experience the greatest growth are the mobile phone, finance and travel sectors. Hot on the heels of these are the entertainment (particularly gaming) and internet-related services (particularly broadband) sectors. Also several of the affiliate solution providers expect to see increased interest from B2B marketers and advertisers in using affiliate marketing as part of their mix. Of course, this is constantly subject to change.

Affiliate Marketing from the Advertiser Perspective

Affiliate Marketing Pros and Cons
Merchants like affiliate marketing because in most cases, it is a "pay for performance model", meaning the merchant does not incur a marketing expense unless results are realized, excluding the initial setup and development of the program. Some businesses owe much of their growth and success to this marketing technique, one example being Amazon.com, especially small and midsize businesses. However, unlike display advertising, affiliate marketing is not easily scalable.

Affiliate Program Implementation Options
Some merchants run their own affiliate programs (In House) while others use third party services provided by intermediaries to track traffic or sales that are referred from affiliates. (see outsourced program management) Merchants can choose from two different types of affiliate management solutions, standalone software or hosted services typically called affiliate networks.

Affiliate Management and Program Management Outsourcing
Main article: Affiliate manager
Successful affiliate programs require a lot of maintenance and work. The number of affiliate programs just a few years back was much smaller than it is today. Having an affiliate program that is successful is not as easy anymore. The days when programs could generate considerable revenue for the merchant even if they were poorly or not at all managed ("auto-drive") is over.

Those uncontrolled programs were one of the reasons why some of the not so positive examples of affiliates were able to do what they did (spamming[13], trademark infringement, false advertising, "cookie cutting", typosquattingetc.).

The increase of number of internet businesses in combination with the increased number of people that trust the current technology enough to do shopping and business online caused and still causes a further maturing of affiliate marketing. The opportunities to generate considerable amount of profit in combination with a much more crowded marketplace filled with about equal quality and sized competitors made it harder for merchants to get noticed, but at the same time the rewards if you get noticed much larger.

Internet advertising industry became much more professional and online media is in some areas closing the gap to offline media, where advertising is highly professional and very competitive for a lot of years already. The requirements to be successful are much higher than they were in the past. Those requirements are becoming often too much of a burden for the merchant to do it successfully in-house. More and more merchants are looking for alternative options which they find in relatively new outsourced (affiliate) program management or OPM companies that were often founded by veteran affiliate managers and network program managers.[15]

The OPM are doing this highly specialized job of affiliate program management for the merchant as a service agency very much like Ad agencies are doing the job to promote a brand or product in the offline world today.

For further reference see the Wikipedia article about affiliate manager and affiliate program management.

Types of Publisher (Affiliate) Websites
Affiliate sites are often categorized by merchants (Advertisers) and Affiliate networks. The main categories are:

Search affiliates that utilize Pay per click search engines to promote the advertisers offers (Search arbitrage)
Comparison shopping sites and directories
Loyalty sites, typically characterized by providing a reward system for purchases via points back, cash back or charitable donations
Coupon and rebate sites that focus on Sales promotions
Content and niche sites, including product review sites
Personal websites (these type of sites were the reason for the birth of affiliate marketing, but are today almost reduced to complete irrelevance compared to the other types of affiliate sites)
Blogs and RSS Feeds
Email list affiliates (Owners of large opt-in email list)
Registration Path affiliates that include offers from other companies during a registration process on their own website.
Shopping directories that list merchants by categories without providing coupons, price comparison and other features based on information that frequently change and require ongoing updates.
CPA Networks are top tier affiliates that expose offers from advertiser they are affiliated with to their own network of affiliates (not to confuse with 2nd tier)

Finding Affiliate Partners (Advertisers)
Affiliate networks that have already a number of advertisers usually also have a large number of publishers already. This large pool of affiliates could be recruited or they might even apply to the program by themselves.

Relevant sites that attract the same audiences as the advertiser is trying to attract, but are not competing with the advertiser are potential affiliate partners as well. Even vendors or the existing customers could be recruited as affiliate, if it makes sense and is not violating any legal restrictions or regulations.

Finding Affiliate Programs (Publishers)
Affiliate programs directories are one way to find affiliate programs, another one are large affiliate networks that provide the platform for dozens or even hundreds of advertisers.

Past and Current Affiliate Marketing Issues
In the early days of affiliate marketing, there was very little control over what affiliates were doing, which was abused by a large number of affiliates. Affiliates used false advertisements, forced clicks to get tracking cookies set on users' computers, and adware, which displays ads on computers. Many affiliate programs were poorly managed.

Email Spam
In its early days many internet users held negative opinions of affiliate marketing due to the tendency of affiliates to use spam to promote the programs in which they were enrolled. As affiliate marketing has matured many affiliate merchants have refined their terms and conditions to prohibit affiliates from spamming.

Search Engine Spam / Spamdexing
There used to be much debate around the affiliate practice of spamdexing and many affiliates have converted from sending email spam to creating large volumes of autogenerated webpages, many-a-times, using product data-feeds provided by merchants. Each devoted to different niche keywords as a way of SEOing their sites with the search engines. This is sometimes referred to as spamming the search engine results. Spam is the biggest threat to organic search engines whose goal is to provide quality search results for keywords or phrases entered by their users. Google's algorithm update dubbed "BigDaddy" in February 2006 which was the final stage of Google's major update dubbed "Jagger" which started mid-summer 2005 specifically targeted this kind of spam with great success and enabled Google to remove a large amount of mostly computer generated duplicate content from its index.

Sites made up mostly of affiliate links are usually badly regarded as they do not offer quality content. In 2005 there were active changes made by Google whereby certain websites were labeled as "thin affiliates"[17] and were either removed from the index, or taken from the first 2 pages of the results and moved deeper within the index. In order to avoid this categorization, webmasters who are affiliate marketers must create real value within their websites that distinguishes their work from the work of spammers or banner farms with nothing but links leading to the merchant sites.

Affiliate links work best in the context of the information contained within the website. For instance, if a website is about "How to publish a website", within the content an affiliate link leading to a merchant's ISP site would be appropriate. If a website is about sports, then an affiliate link leading to a sporting goods site might work well within the content of the articles and information about sports. The idea is to publish quality information within the site, and to link "in context" to related merchant's sites.

Adware
Adware is still an issue today, but affiliate marketers have taken steps to fight it. AdWare is not the same as SpyWare although both often use the same methods and technologies. Merchants usually had no clue what adware was, what it did and how it was damaging their brand. Affiliate marketers became aware of the issue much more quickly, especially because they noticed that adware often overwrites their tracking cookie and results in a decline of commissions. Affiliates who do not use adware became enraged by adware, which they felt was stealing hard earned commission from them. Adware usually has no valuable purpose or provides any useful content to the often unaware user that has the adware running on his computer. Affiliates discussed the issues in various affiliate forums and started to get organized. It became obvious that the best way to cut off adware was by discouraging merchants from advertising via adware. Merchants that did not care or even supported adware were made public by affiliates, which damaged the merchants' reputations and also hurt the merchants' general affiliate marketing efforts. Many affiliates simply "canned" the merchant or switched to a competitor's affiliate program. Eventually, affiliate networks were also forced by merchants and affiliates to take a stand and ban adware publishers from their network.

Trademark Bidding / PPC
Affiliates were among the earliest adopters of pay-per-click advertising when the first PPC search engines like Goto.com (which became later Overture.com, acquired by Yahoo! in 2003) emerged during the end of the nineteen-nineties. Later in 2000 Google launched their PPC service AdWords which is responsible for the wide spread use and acceptance of PPC as an advertising channel. More and more merchants engaged in PPC advertising, either directly or via a search marketing agency and realized that this space was already well occupied by their affiliates. Although this fact alone did create channel conflicts and hot debate between advertisers and affiliates, was the biggest issue the bidding on advertisers names, brands and trademarks by some affiliates. A larger number of advertisers started to adjust their affiliate program terms to prohibit their affiliates from bidding on those type of keywords. Some advertisers however did and still do embrace this behavior of their affiliates and allow them, even encourage them, to bid an any term they like, including the advertisers trademarks.

Lack of Self Regulation
Affiliate marketing is driven by entrepreneurs who are working at the forefront of internet marketing. Affiliates are the first to take advantage of new emerging trends and technologies where established advertisers do not dare to be active. Affiliates take risks and "trial and error" is probably the best way to describe how affiliate marketers are operating. This is also one of the reasons why most affiliates fail and give up before they "make it" and become "super affiliates" who generate $10,000 and more in commission (not sales) per month. This "frontier" life and the attitude that can be found in such type of communities is probably the main reason, why the affiliate marketing industry is not able to this day to self-regulate itself beyond individual contracts between advertiser and affiliate. The 10+ years history since the beginning of affiliate marketing is full of failed attempts to create an industry organization or association of some kind that could be the initiator of regulations, standards and guidelines for the industry. Some of the failed examples are the Affiliate Union, iAfma, USAMC, Affiliate Marketing Advertising Board and Affiliate Marketing Trade Association.

The only places where the different people from the industry, affiliates/publishers, merchants/advertisers, networks and 3rd party vendors and service providers like outsources program managers come together at one location are either online forums and industry trade shows. The forums are free and even small affiliates can have a big voice at places like that, which is supported by the anonymity that is provided by those platforms. Trade shows are not anonymous, but a large number, in fact the greater number (quantitative) of affiliates is not able to attend those events for financial reasons. Only performing affiliates can afford the often hefty price tags for the event passes or get it sponsored by an advertisers they promote.

Because of the anoymity of forums, the only place where you are to get the majority (quantitative) of people in the industry together, is it almost impossible to create any form of legally binding rule or regulation that must be followed by everybody in the industry. Forums had only very few successes in their role as representant of the majority in the affiliate marketing industry. The last example[19] of such a success was the halt of the "CJ LMI" ("Commission Junction Link Management Initiative") in June/July 2006, when a single network tried to impose on their publishers/affiliates the use of Javascript tracking code as a replacement for common HTML links.

CPA Networks "Threat"
Affiliate marketers usually avoid this topic as much as possible, but when it is being discussed, then are the debates explosive and heated to say the least. The discussion is about CPA networks (CPA = Cost per action) and their impact on "classic" affiliate marketing. Traditional affiliate marketing is resources intensive and requires a lot of maintenance. Most of this includes the management, monitoring and support of affiliates. Affiliate marketing is supposed to be about long-term and mutual benefitial partnerships between advertisers and affiliates. CPA networks on the other hand eliminate the need for the advertiser to build and maintain relationships to affiliates, because that task is performed by the CPA network for the advertiser. The advertiser simply puts an offer out, which is in almost every case a CPA based offer, and the CPA networks take care of the rest by mobilizing their affiliates to promote that offer. CPS or revenue share offers are rarely be found at CPA networks, which is the main compensation model of classic affiliate marketing..

The Name Affiliate Marketing
Voices in the industry are getting louder that recommend a renaming of affiliate marketing. The problem with the word affiliate marketing is that it is often confused with network-marketing or multi-level marketing what it is absolutely not. "Performance marketing" is one of the alternative names that is used the most, but other recommendations were made as well, but who is to decide about the change of a name of a whole industry. Something like that was attempted years ago for the search engine optimization industry, an attempt that obviously failed since it is still called SEO today.

Affiliate Marketing and Web 2.0
The rise of blogging, interactive online communities and other new technologies, web sites and services based on the concepts that are now called Web 2.0 have impacted the affiliate marketing world as well. The new media allowed merchants to get closer to their affiliates and improved communication between each other New developments have made it harder for unscrupulous affiliates to make money. Emerging black sheep are detected and made known to the affiliate marketing community with much greater speed and efficiency.

Affiliate marketing - using one site to drive traffic to another - is the stepchild of online marketing. While search engines, e-mail and RSS capture much of the attention of online retailers, affiliate marketing, despite lineage that goes back almost to the beginning of online retailing, carries a much lower profile. Yet affiliates continue to play a fundamental role in e-retailers' marketing strategies.

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