ffiliate marketing is a marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's own marketing efforts. Examples include rewards sites, where users are rewarded with cash or gifts, for the completion of an offer, and the referral of others to the site. The industry has four core players: the merchant (also known as 'retailer' or 'brand'), the network, the publisher (also known as 'the affiliate'), and the customer. The market has grown in complexity to warrant a secondary tier of players, including affiliate management agencies, super-affiliates and specialized third party vendors.
Affiliate marketing overlaps with other Internet marketing methods to some degree, because affiliates often use regular advertising methods. Those methods include organic search engine optimization, paid search engine marketing, e-mail marketing, and in some sense display advertising. On the other hand, affiliates sometimes use less orthodox techniques, such as publishing reviews of products or services offered by a partner.
Affiliate marketing—using one website to drive traffic to another—is a form of online marketing, which is frequently overlooked by advertisers.[1] While search engines, e-mail, and website syndication capture much of the attention of online retailers, affiliate marketing carries a much lower profile. Still, affiliates continue to play a significant role in e-retailers' marketing strategies.[2]Origin
The concept of revenue sharing—paying commission for referred business—predates affiliate marketing and the Internet. The translation of the revenue share principles to mainstream e-commerce happened in November 1994[3], almost four years after the origination of the World Wide Web.
Cybererotica was among the early innovators in affiliate marketing with a cost per click program.[4]
During November 1994, CDNOW launched its BuyWeb program. CDNOW had the idea that music-oriented websites could review or list albums on their pages that their visitors may be interested in purchasing. These websites could also offer a link that would take the visitor directly to CDNOW to purchase the albums. The idea for remote purchasing originally arose because of conversations with music label Geffen Records in the fall of 1994. The management at Geffen wanted to sell its artists' CDs directly from its website, but did not want to implement this capability itself. Geffen asked CDNOW if it could design a program where CDNOW would handle the order fulfillment. Geffen realized that CDNOW could link directly from the artist on its website to Geffen's website, bypassing the CDNOW home page and going directly to an artist's music page.[5]
Amazon.com (Amazon) launched its associate program in July 1996: Amazon associates could place banner or text links on their site for individual books, or link directly to the Amazon home page.[6]
When visitors clicked from the associate's website through to Amazon and purchased a book, the associate received a commission. Amazon was not the first merchant to offer an affiliate program, but its program was the first to become widely known and serve as a model for subsequent programs.[7][8]
In February 2000, Amazon announced that it had been granted a patent[9] on components of an affiliate program. The patent application was submitted in June 1997, which predates most affiliate programs, but not PC Flowers & Gifts.com (October 1994), AutoWeb.com (October 1995), Kbkids.com/BrainPlay.com (January 1996), EPage (April 1996), and several others.[4]
[edit]Historic development
Affiliate marketing has grown quickly since its inception. The e-commerce website, viewed as a marketing toy in the early days of the Internet, 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, the total sales amount generated through affiliate networks in 2006 was £2.16 billion in the United Kingdom alone. The estimates were £1.35 billion in sales in 2005.[10] MarketingSherpa's research team estimated that, in 2006, affiliates worldwide earned US$6.5 billion in bounty and commissions from a variety of sources in retail, personal finance, gaming and gambling, travel, telecom, education, publishing, and forms of lead generation other than contextual advertising programs.[11]
Currently the most active sectors for affiliate marketing are the adult, gambling, retail industries and file-sharing services.[12] The three sectors expected to experience the greatest growth are the mobile phone, finance, and travel sectors.[12] Soon after these sectors came the entertainment (particularly gaming) and Internet-related services (particularly broadband) sectors. Also several of the affiliate solution providers expect to see increased interest from business-to-business marketers and advertisers in using affiliate marketing as part of their mix.[12]
[edit]Web 2.0
Websites and services based on Web 2.0 concepts—blogging and interactive online communities, for example—have impacted the affiliate marketing world as well. The new media allowed merchants to become closer to their affiliates and improved the communication between them.[13][14]
[edit]Compensation methods
Main article: Compensation methods
[edit]Predominant compensation methods
Eighty percent of affiliate programs today use revenue sharing or cost per sale (CPS) as a compensation method, nineteen percent use cost per action (CPA), and the remaining programs use other methods such as cost per click (CPC) or cost per mille (CPM).[15]
[edit]Diminished compensation methods
Within more mature markets, less than one percent of traditional affiliate marketing programs today use cost per click and cost per mille. However, these compensation methods are used heavily in display advertising and paid search.
Cost per mille requires only that the publisher make the advertising available on his website and display it to his visitors in order to receive a commission. Pay per click requires one additional step in the conversion process to generate revenue for the publisher: A visitor must not only be made aware of the advertisement, but must also click on the advertisement to visit the advertiser's website.
Cost per click was more common in the early days of affiliate marketing, but has diminished in use over time due to click fraud issues very similar to the click fraud issues modern search engines are facing today. Contextual advertising programs are not considered in the statistic pertaining to diminished use of cost per click, as it is uncertain if contextual advertising can be considered affiliate marketing.
While these models have diminished in mature e-commerce and online advertising markets they are still prevalent in some more nascent industries. China is one example where Affiliate Marketing does not overtly resemble the same model in the West. With many affiliates being paid a flat "Cost Per Day" with some networks offering Cost Per Click or CPM.
[edit]Performance marketing
In the case of cost per mille/click, the publisher is not concerned about a visitor being a member of the audience that the advertiser tries to attract and is able to convert, because at this point the publisher has already earned his commission. This leaves the greater, and, in case of cost per mille, the full risk and loss (if the visitor can not be converted) to the advertiser.
Cost per action/sale methods require that referred visitors do more than visit the advertiser's website before the affiliate receives commission. The advertiser must convert that visitor first. It is in the best interest for the affiliate to send the most closely 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.
Affiliate marketing is also called "performance marketing", in reference to how sales employees are typically being compensated. Such employees are typically paid a commission for each sale they close, and sometimes are paid performance incentives for exceeding targeted baselines.[16] 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 completely accurate. The primary difference between the two is that affiliate marketers provide little if any influence on a possible prospect in the conversion process once that prospect is directed to the advertiser's website. The sales team of the advertiser, however, does have the control and influence up to the point where the prospect signs the contract or completes the purchase.
[edit]Multi-tier programs
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 publishers "B" and "C" to sign up for the same program using his sign-up code, all future activities performed by publishers "B" and "C" will result in additional commission (at a lower rate) for publisher "A".
Two-tier programs exist in the minority of affiliate programs; most are simply one-tier. Referral programs beyond two-tier resemble multi-level marketing (MLM) or network marketing but are different: Multi-level marketing (MLM) or network marketing associations tend to have more complex commission requirements/qualifications than standard affiliate programs.
[edit]From the advertiser perspective
[edit]Pros and cons
Merchants favor affiliate marketing because in most cases it uses a "pay for performance" model, meaning that the merchant does not incur a marketing expense unless results are accrued (excluding any initial setup cost).[17] Some businesses owe much of their success to this marketing technique, a notable example being Amazon.com. Unlike display advertising, however, affiliate marketing is not easily scalable.[18]
[edit]Implementation options
Some merchants run their own (i.e., in-house) affiliate programs using popular software 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. Payouts to affiliates or publishers are either made by the networks on behalf of the merchant, by the network, consolidated across all merchants where the publisher has a relationship with and earned commissions or directly by the merchant itself.
[edit]Affiliate management and program management outsourcing
Main article: Affiliate manager
Successful affiliate programs require significant work and maintenance. Having a successful affiliate program is more difficult than when such programs were just emerging. With the exception of some vertical markets, it is rare for an affiliate program to generate considerable revenue with poor management or no management (i.e., "auto-drive").
Uncontrolled affiliate programs did—and continue to do so today—aid rogue affiliates, who use spamming,[19] trademark infringement, false advertising, "cookie cutting"[citation needed], typosquatting,[20] and other unethical methods that have given affiliate marketing a negative reputation.
The increased number of Internet businesses and the increased number of people that trust the current technology enough to shop and do business online allows further maturation of affiliate marketing. The opportunity to generate a considerable amount of profit combined with a crowded marketplace filled with competitors of equal quality and size makes it more difficult for merchants to be noticed. In this environment, however, being noticed can yield greater rewards.
Recently, the Internet marketing industry has become more advanced. In some areas online media has been rising to the sophistication of offline media, in which advertising has been largely professional and competitive. There are significantly more requirements that merchants must meet to be successful, and those requirements are becoming too burdensome for the merchant to manage successfully in-house. An increasing number of merchants are seeking alternative options found in relatively new outsourced (affiliate) program management (OPM) companies, which are often founded by veteran affiliate managers and network program managers.[21] OPM companies perform affiliate program management for the merchants as a service, similar to advertising agencies promoting a brand or product as done in offline marketing.
[edit]Types of affiliate websites
Affiliate websites are often categorized by merchants (i.e., advertisers) and affiliate networks. There are currently no industry-wide accepted standards for the categorization. The following types of websites are generic, yet are commonly understood and used by affiliate marketers.
Search affiliates that utilize pay per click search engines to promote the advertisers' offers (i.e., search arbitrage)
Comparison shopping websites and directories
Loyalty websites, typically characterized by providing a reward system for purchases via points back, cash back
CRM sites that offer charitable donations
Coupon and rebate websites that focus on sales promotions
Content and niche market websites, including product review sites
Personal websites
Weblogs and website syndication feeds
E-mail list affiliates (i.e., owners of large opt-in -mail lists that typically employ e-mail drip marketing) and newsletter list affiliates, which are typically more content-heavy
Registration path or co-registration affiliates who include offers from other merchants during the registration process on their own website
Shopping directories that list merchants by categories without providing coupons, price comparisons, or other features based on information that changes frequently, thus requiring continual updates
Cost per action networks (i.e., top-tier affiliates) that expose offers from the advertiser with which they are affiliated to their own network of affiliates
Websites using adbars (e.g. Adsense) to display context-sensitive, highly relevant ads for products on the site
Virtual Currency: a new type of publisher that utilizes the social media space to couple an advertiser's offer with a handout of "virtual currency" in a game or virtual platform.
Video Blog: Video content that allows viewers to click on and purchase products related to the video's subject.
File-Sharing: Web sites that host directories of music, movies, games and other software. Users upload content (usually in violation of copyright) to file-hosting sites, and then post descriptions of the material and their download links on directory sites. Uploaders are paid by the file-hosting sites based on the number of times their files are downloaded. The file-hosting sites sell premium download access to the files to the general public. The web sites that host the directory services sell advertising and do not host the files themselves.
[edit]Publisher recruitment
Affiliate networks that already have several advertisers typically also have a large pool of publishers. These publishers could be potentially recruited, and there is also an increased chance that publishers in the network apply to the program on their own, without the need for recruitment efforts by the advertiser.
Relevant websites that attract the same target audiences as the advertiser but without competing with it are potential affiliate partners as well. Vendors or existing customers can also become recruits if doing so makes sense and does not violate any laws or regulations.
Almost any website could be recruited as an affiliate publisher, although high-traffic websites are more likely interested in (for their own sake) low-risk cost per mille or medium-risk cost per click deals rather than higher-risk cost per action or revenue share deals.[22]
[edit]Locating affiliate programs
There are three primary ways to locate affiliate programs for a target website:
Affiliate program directories,
Large affiliate networks that provide the platform for dozens or even hundreds of advertisers, and
The target website itself. (Websites that offer an affiliate program often have a link titled "affiliate program", "affiliates", "referral program", or "webmasters"—usually in the footer or "About" section of the website.)
If the above locations do not yield information pertaining to affiliates, it may be the case that there exists a non-public affiliate program. Utilizing one of the common website correlation methods may provide clues about the affiliate network. The most definitive method for finding this information is to contact the website owner directly, if a contact method can be located.
[edit]Past and current issues
Since the emergence of affiliate marketing, there has been little control over affiliate activity. Unscrupulous affiliates have used spam, false advertising, forced clicks (to get tracking cookies set on users' computers), adware, and other methods to drive traffic to their sponsors. Although many affiliate programs have terms of service that contain rules against spam, this marketing method has historically proven to attract abuse from spammers.
