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» Affiliate Marketing » Affiliate Programs » Affiliate Marketing Models

1. What is Affiliate Marketing?
2. History of Affiliate Marketing
3. Affiliate Marketing Today
4. Future of Affiliate Marketing

What is Affiliate marketing?

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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.

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.

History of Affiliate Marketing

There is a popular urban myth about the origins of affiliate marketing. It goes something like this...

In July 1996, Amazon.com launched the first affiliate program on the Internet. That's the story in the Amazon.com Associates Program Frequently Asked Questions, at least.

As legend has it, Jeff Bezos, CEO and founder of Amazon.com, chatted with a woman at a cocktail party about how she wanted to sell books about divorce on her web site. After that exchange, Bezos pondered the idea and thought about having the woman link her site to Amazon.com and receive a commission on the book sales. This was the impetus for creating the "first on the Web" Amazon.com Associates Program.

But there are some problems with that claim by Bezos. According to Daniel Gray in "The Complete Guide to Associate and Affiliate Programs on the Net," there were a number of sites that operated programs prior to July 1996. And that is just the mainstream side of it. There are also many adult sites that dabbled in the affiliate marketing concept before Amazon.com picked it up.

The Mothers of Invention
The big secret of the Internet is that the adult sites came up with many of the best (and worst) marketing concepts that are used in the mainstream.

Brian Clark, president of ReveNews.com and member of Affiliate Union's board of directors, states, "I'm quite a fan of the adult industry -- not a consumer of their product, by any means -- but deeply respectful of how much of the innovation in online business models is really happening in that industry first and bemused by people's reticence to give them the credit or even talk about the subject."

"Not just affiliate programs, mind you. They're also the cutting edge of streaming video, pay-for-view content, coercive click conversion, community publishing, etc.," comments Clark. Mark Hardie of Forrester Research concurs. "What I see when I look at this industry -- putting aside any moral judgments about reprehensible content -- is an amazing example of an industry that has banded together to protect its business, push revenue across the industry, and innovate cutting-edge technologies," says Hardie. "I think there's a lot here that can be applied elsewhere."

The consensus of marketing folks and adult industry insiders is that Cybererotica was either the first or among the early innovators in affiliate marketing with a cost-per-click program. According to John Distasio of CyberFoxes, none of the adult sites are running cost-per-click programs anymore. CyberFoxes, which has been running its affiliate program since 1996, started with the cost-per-click model, but because of the high volume of fraud, it now employs a cost-per-acquisition model. In the current program, which uses CC Bill for tracking and payouts, an affiliate earns 50 percent of a converted lead and a 50 percent residual each time its lead renews on the monthly subscription.

Before There Was Amazon.com
In February 2000, Amazon.com announced that it had been granted a patent (6,029,141) on all the essential components of an affiliate program. The patent application was submitted in June 1997, which was before most affiliate programs but not before PC Flowers & Gifts.com (October 1994), AutoWeb.com (October 1995), Kbkids.com/BrainPlay.com (January 1996), EPage (April 1996), and a handful of others. "While I admire what Jeff Bezos did for the industry, he in no way pioneered anything," said Brad Waller, VP of marketing for EPage.

"He popularized the idea, but he was a latecomer -- by about two years. There is quite a bit of documentation on this issue, including assertions by Jason Olim and Matthew Olim, in their book about founding CDNow, that they had an informal program in 1994," continued Waller.

Finding a Solution
Chris d'Eon, current VP of marketing - retention with Proflowers.com faced an early affiliate marketing dilemma when he was at an Internet start-up that was selling online backup solutions (@Backup, now called SkyDesk) back in 1996.

According to d'Eon, "The early challenge [of affiliate marketing] was to build a tracking system. We finally built our own, first using spreadsheets, then a full-blown system. We eventually spun this system off and recently sold it to ValueClick. In the early days, we did meet a few companies doing the same thing as we were... Alexa and Launch.com come to mind."

The formal birth of affiliate solution providers came to be in 1996 with the launch of LinkShare and Be Free. Commission Junction started up in 1998 to round out what is considered to be the top three.

Directory Assistance
The landscape of affiliate program directories has become a bit overwhelming in the last year. An estimated 50 directories are trying to direct traffic in affiliate space, but it all started with Refer-it.com.

According to James Marciano, he founded Refer-it.com in October 1997 because he could not find one central place for affiliate programs to generate revenue for his site, TheSquare.com. He decided what was needed was a search engine for affiliate programs with ratings and details.

In January 1998, Allan Gardyne started up a one-page associate programs directory. He had hunted in every major search engine for an affiliate program directory and could not find one, so he started his own version. That one-page site officially became AssociatePrograms.com in February 1998. Other important players, such as 2-Tier, Associate-it, CashPile.com, and ReveNews.com, launched later in 1998.

Affiliate Marketing Today

The best kept secret of the Internet marketing industry is probably that adult and gaming sites really pioneered and pushed the online marketing envelope. Today, many of these effective concepts have been adopted by non-adult websites. I for one, highly respect the leading edge technology and creative marketing strategies that have stemmed from the adult online marketing industry. Ironically, adult sites are also the entities that gave birth to many unacceptable and substandard online practices.

In the late 1990's and early 2000's, it was very costly to launch and run an Affiliate Program. With the advancement in technology and software development, the cost required to launch a successful Affiliate Program has decreased dramatically. It can still be expensive if you go through a big network type solution like Commission Junction or Linkshare but there are other solutions available to merchants now. Companies like ShareASale and DirectTrack offer affordable affiliate tracking solutions.

Affiliate marketing today is as good as it has ever been. Merchants now have an option to open a channel that has been proven to potentially lower cost of acquisitions compared to other online marketing drivers such as paid placement and media buys. Out of Affiliate Marketing grows a new group of entrepreneurs called Affiliates. More and more Affiliates are seeing success at earning commissions every time a visitor clicks from their website to a merchant site and make a purchase. Because there is Affiliate Marketing, outsourced Affiliate Management companies such as PartnerCentric and AMSWO have seen consistent growth in the past few years. From single affiliates to corporations, I believe Affiliate Marketing has truly benefited entrepreneurs everywhere!

The Future of Affiliate Marketing

Internet marketing in general is still in its infancy. When Affiliate marketing first became popular in the mid to late 1990's, merchants bragged about the number of affiliates signed up to their programs. Today, many companies no longer equate a high number of affiliates in their program as a benefit. In fact, it can be a liability. A massive inactive Affiliate membership can hinder logistical efficiencies of a program.

From speaking to other Affiliate Managers, I get the sense that the 80-20 rule probably applies to Affiliate Marketing as well. 20% of your affiliates generate 80% of your revenue. I for one would rather work with a smaller group of active Affiliates than a big group of which only a small percentage of the base is productive. There are less headaches and resources associated with this type of a program - less monitoring and policing to ensure your Affiliates are complying with rules set out in your Affiliate agreement, less chance of fraudulent orders taking place, etc...

Affiliate marketing has come a long way since the mid 1990's, both from a technical standpoint and from a marketing perspective. In addition to such issues as cookie stuffing, parasitic behaviour, and sites created using a data feed, it will definitely be interesting to see what other medium specific concerns the industry will encounter as Affiliate marketing matures.

To learn more how affiliate marketing is affected most in wake of Google BigDaddy update, check the links below:

Why does Google hate affiliates
Organic Spam and Revenues
Verification of Pharmacies