Affiliate Marketing is a popular method of promoting web businesses in which an affiliate is rewarded for every visitor, subscriber and/or customer provided through his efforts.
It is a modern variation of the practice of paying finder's-fees for the introduction of new clients to a business. Compensation may be made based on a certain value for each visit (Pay per click), registrant (Pay per lead), or a commission for each customer or sale (Pay per Sale), or any combination.
The most attractive aspect of affiliate marketing, from the merchant's viewpoint, is that with this pay for performance model, no payment is due to an affiliate until results are realized.
Some e-commerce sites run their own affiliate programs while other e-commerce vendors use third party services provided by intermediaries to track traffic or sales that are referred from affiliates. Some businesses owe much of their growth and success to this marketing technique, although research has shown in general the increase to be approximately 15-20% of online revenue.
Some advertisers offer multi-tier affiliate programs that distribute commission into a hierarchical referral network of sign-ups and sub-affiliates. In practical terms: publisher "A" signs up the affiliate 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 affiliate 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. Most affiliate programs are simply one-tier.
Merchants who are considering adding an affiliate strategy to their online sales channel should research the different technological solutions available to them. Some types of affiliate management solutions include: standalone software, hosted services, shopping carts with affiliate features, and third party affiliate networks.
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.
Currently there is much debate around the affiliate practice of Spamdexing and many affiliates have converted from sending email spam to creating large volumes of autogenerated webpages 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 "Big Daddy" 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.
A Brief History of Affiliate Marketing
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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 BusinessDevelopment 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.
Compensation Models
Pay-Per-Impression (CPM)
Cost-Per-Mil (Mil = 1000) Impressions. Publisher gets from Advertiser $x.xx Amount of money for every 1000 Impressions (Page Views/Displays) of the Ad. The Ad can be Text (AdSense), Banner Image or Rich Media.
Pay-Per-Click (CPC)
Cost-Per-Click. Advertiser pays Publisher $x.xx amount of money, every time a visitor (potential prospect) clicks on the advertiser's Ad. It is irrelevant (for the compensation) how often an Ad is displayed. Commission is only due when the Ad is clicked. See also click fraud.
Pay-Per-Lead (CPA or CPL)
Cost-Per-Action or Cost-Per-Acquisition (CPA), Cost-per-Lead (CPL). Advertiser pays Publisher $x.xx in commission for every visitor that was referred by the publisher to the Advertiser (Website) and performs a desired action, such as Filling out a Form, Creating an Account or Signing up for a Newsletter. This compensation model is very popular with online services from ISP's, Cell Phone Providers, Banks (Loans, Mortgages, Credit Cards) and Subscription Services.
Pay-Per-Sale (CPS)
Cost-Per-Sale (CPS). Advertiser pays the publisher a percentage (%) of the Order Amount (Sale) that was created by a customer who was referred by the publisher. This model is by far the most common compensation model used by online retailers that have an affiliate program.
Pay-Per-Call
This is a new compensation model. No official abbreviation exist yet. Advertiser pays publisher a $x.xx commission for phone calls received from potential prospects as response to a specific publisher Ad. Recently developed call-tracking technology allows to create a bridge between online and offline Advertising. Pay-Per-Call Advertising is still new and in its infancy.
Early days
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, trademark bidding on search engines, forced clicks to get tracking cookies set on users' computers, and Adware. Many affiliate programs were poorly managed.
This changed dramatically over the last few years for multiple reasons. Revenue generated online grew quickly. 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. Many companies hired outside affiliate management companies to manage the affiliate program.
Today, affiliate marketing is the single fastest growth industry on the Internet. It’s also true that affiliate marketing is one of the fastest and most creative ways to make money and have a career on the Internet.
In fact, research shows that affiliate marketing is the most cost-effective way to generate online sales. As per market statistics, affiliate marketing in terms of total sales generated mainly through the affiliate networks, was worth close to a billion in the UK alone, combining the figures for the last two years. This of course is excluding white label and self-administered schemes. Besides, the affiliate solution providers confidently expect their own revenues to grow between 50%-75% in 2005-2006, and also confidently expect their own revenues to grow between 40%-75%.
Currently the most active sectors for affiliate marketing are the adult, gambling and retail sectors. The three sectors expected to experience the greatest growth in affiliate marketing 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.
When Google, the most popular search engine on the Internet, introduced AdWords (pay-per-click advertising pioneered by Goto.com, then Overture.com and now Yahoo! Search Marketing) many Merchants became aware of the issue of trademark bidding by affiliates. The terms of service were quickly modified by most merchants and structures were put in place to monitor affiliate activities.
Adware
Adware is still an issue today, but affiliate marketers have taken steps to fight it. 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 quicker, 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 such as ABestWeb 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.
The new Web
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 portals like Return on Affiliates allow affiliates, merchants, and networks to interconnect easily, on a professional and a personal level.
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.
Important Abbreviations
CPA - Cost per Action
CPC - Cost per Click
CPL - Cost per Lead
CPM - Cost per (Mil) Impression (1000 Impressions)
CPS - Cost per Sale
CR - Conversion Rate
CTR - Click through rate
DRM - Dynamic Rich Media (type of Ad, technology). It has nothing to do with DRM as in Digital Rights Management
EPC - Earnings per Click / Earnings per 100Clicks
OPM - Outsourced (Affiliate) Program Management
PPC - Pay per Click
ROI - Return on Investment
SE - Search Engines
SEM - Search Engine Marketing
SEO - Search Engine Optimization
SERP - Search Engine Result Page
SID - URL Parameter the Affiliate can pass to get tracked with Sales and Leads
(From Wikipedia, the free encyclopedia)