Affiliate marketing

Affiliate Marketing is an Internet-based marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's marketing efforts. It is an application of crowdsourcing.^{[citation needed]} 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 affiliate marketing 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 parties 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. 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.

History

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 almost four years after the origination of the World Wide Web in November 1994.^{[citation needed]}

The consensus of marketers 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.

During November 1994, CDNOW launched its BuyWeb program. With this program CDNOW was the first non-adult website to introduce the concept of an affiliate or associate program with its idea of click-through purchasing. 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.

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.^{[citation needed]}

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.

In February 2000, Amazon announced that it had been granted a patent on all the essential 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.

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. 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 such as Google AdSense.

Currently the most active sectors for affiliate marketing are the adult, gambling, and retail industries. The three sectors expected to experience the greatest growth are the mobile phone, finance, and travel sectors. 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.

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.

New developments have made it more difficult 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.^{[citation needed]}

Compensation methods

Main article: Compensation methods

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).

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 such as Google AdSense 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.

Whilst 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.

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. 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.

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 have more requirements/qualifications to get paid a commission. Whereas affiliate programs do not.

From the advertiser perspective

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). 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.

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.

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, trademark infringement, false advertising, "cookie cutting"^{[citation needed]}, typosquatting, 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. 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.

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 (This type of website was the reason for the birth of affiliate marketing; however, such websites are almost reduced to complete irrelevance compared to the other types of affiliate websites.)^{[citation needed]}
• 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

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.

Locating affiliate programs

There are three primary ways to locate affiliate programs for a target website:

1. Affiliate program directories,
2. Large affiliate networks that provide the platform for dozens or even hundreds of advertisers, and
3. 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. The most definitive method for finding this information is to contact the website owner directly.

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.

E-mail spam

In the infancy of affiliate marketing, many Internet users held negative opinions due to the tendency of affiliates to use spam to promote the programs in which they were enrolled. As affiliate marketing matured, many affiliate merchants have refined their terms and conditions to prohibit affiliates from spamming.

Search engine spam

As search engines have become more prominent, some affiliate marketers have shifted from sending e-mail spam to creating automatically-generated webpages that often contain product data feeds provided by merchants. The goal of such webpages is to manipulate the relevancy or prominence of resources indexed by a search engine, also known as spamdexing. Each page can be targeted to a different niche market through the use of specific keywords, with the result being a skewed form of search engine optimization.

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 PageRank algorithm update ("BigDaddy") in February 2006—the final stage of Google's major update ("Jagger") that began in mid-summer 2005—specifically targeted spamdexing with great success. This update thus enabled Google to remove a large amount of mostly computer-generated duplicate content from its index.

Websites consisting mostly of affiliate links have previously held a negative reputation for underdelivering quality content. In 2005 there were active changes made by Google, where certain websites were labeled as "thin affiliates". Such websites were either removed from Google's index or were relocated within the results page (i.e., moved from the top-most results to a lower position). To avoid this categorization, affiliate marketer webmasters must create quality content on their websites that distinguishes their work from the work of spammers or banner farms, which only contain links leading to merchant sites.

Some commentators originally suggested that Affiliate links work best in the context of the information contained within the website itself. For instance, if a website contains information pertaining to publishing a website, an affiliate link leading to a merchant's Internet service provider (ISP) within that website's content would be appropriate. If a website contains information pertaining to sports, an affiliate link leading to a sporting goods website may work well within the context of the articles and information about sports. The goal in this case is to publish quality information within the website and provide context-oriented links to related merchant's websites.

However, more recent examples exist of "thin" Affiliate sites which are using the Affiliate Marketing model to create value for Consumers by offering them a service. These thin content service Affiliate fall into three categories:

• Price comparison
• Cause related marketing
• Time saving

Adware

Although it differs from spyware, adware often uses the same methods and technologies. Merchants initially were uninformed about adware, what impact it had, and how it could damage their brands. Affiliate marketers became aware of the issue much more quickly, especially because they noticed that adware often overwrites tracking cookies, thus resulting in a decline of commissions. Affiliates not employing adware felt that it was stealing commission from them. Adware often has no valuable purpose and rarely provides any useful content to the user, who is typically unaware that such software is installed on his/her computer.

Affiliates discussed the issues in Internet forums and began to organize their efforts. They believed that the best way to address the problem was to discourage merchants from advertising via adware. Merchants that were either indifferent to or supportive of adware were exposed by affiliates, thus damaging those merchants' reputations and tarnishing their affiliate marketing efforts. Many affiliates either terminated the use of such merchants or switched to a competitor's affiliate program. Eventually, affiliate networks were also forced by merchants and affiliates to take a stand and ban certain adware publishers from their network. The result was Code of Conduct by Commission Junction/beFree and Performics, LinkShare's Anti-Predatory Advertising Addendum, and ShareASale's complete ban of software applications as a medium for affiliates to promote advertiser offers. Regardless of the progress made, adware continues to be an issue, as demonstrated by the class action lawsuit against ValueClick and its daughter company Commission Junction filed on April 20, 2007.

Trademark bidding

Affiliates were among the earliest adopters of pay per click advertising when the first pay per click search engines such as Goto.com (which later became Overture.com after being acquired by Yahoo! in 2003) emerged during the end of the 1990s. Later in 2000 Google launched its pay per click service, Google AdWords, which is responsible for the widespread use and acceptance of pay per click as an advertising channel. An increasing number of merchants engaged in pay per click advertising, either directly or via a search marketing agency, and realized that this space was already well-occupied by their affiliates. Although this situation alone created advertising channel conflicts and debates between advertisers and affiliates, the largest issue concerned affiliates bidding on advertisers names, brands, and trademarks. Several advertisers began 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, going so far as to allow, or even encourage, affiliates to bid on any term, including the advertiser's trademarks.

Lack of self-regulation and collaboration

Affiliate marketing is driven by entrepreneurs who are working at the edge of Internet marketing. Affiliates are often the first to take advantage of emerging trends and technologies. The "trial and error" approach is probably the best way to describe the operation methods for affiliate marketers. This risky approach is one of the reasons why most affiliates fail or give up before they become successful "super affiliates", capable of generating US$10,000 or more per month in commission. This "frontier" life combined with the attitude found in such communities is likely the main reason why the affiliate marketing industry is unable to self-regulate beyond individual contracts between advertisers and affiliates. Affiliate marketing has experienced numerous 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 examples of failed regulation efforts are the Affiliate Union and iAfma.

Online forums and industry trade shows are the only means for the different members from the industry—affiliates/publishers, merchants/advertisers, affiliate networks, third-party vendors, and service providers such as outsourced program managers—to congregate at one location. Online forums are free, enable small affiliates to have a larger say, and provide anonymity. Trade shows are cost-prohibitive to small affiliates because of the high price for event passes. Larger affiliates may even be sponsored by an advertiser they promote.

Because of the anonymity of online forums, the quantitative majority of industry members are unable to create any form of legally binding rule or regulation that must be followed throughout the industry. Online forums have had very few successes as representing the majority of the affiliate marketing industry. The most recent example of such a success was the halt of the "Commission Junction Link Management Initiative" (CJ LMI) in June/July 2006, when a single network tried to impose the use of a Javascript tracking code as a replacement for common HTML links on its affiliates.

Lack of industry standards

Certification and training

Affiliate marketing currently lacks industry standards for training and certification. There are some training courses and seminars that result in certifications; however, the acceptance of such certifications is mostly due to the reputation of the individual or company issuing the certification. Affiliate marketing is not commonly taught in universities, and only a few college instructors work with Internet marketers to introduce the subject to students majoring in marketing.

Education occurs most often in "real life" by becoming involved and learning the details as time progresses. Although there are several books on the topic, some so-called "how-to" or "silver bullet" books instruct readers to manipulate holes in the Google algorithm, which can quickly become out of date, or suggest strategies no longer endorsed or permitted by advertisers.

Outsourced Program Management companies typically combine formal and informal training, providing much of their training through group collaboration and brainstorming. Such companies also try to send each marketing employee to the industry conference of their choice.

Other training resources used include online forums, weblogs, podcasts, video seminars, and specialty websites.

Affiliate Summit is the largest conference in the industry, and many other affiliate networks host their own annual events.

Code of conduct

A code of conduct was released by affiliate networks Commission Junction/beFree and Performics in December 2002 to guide practices and adherence to ethical standards for online advertising.

Threat to traditional affiliate networks

Cost per action networks can be viewed as a threat to "classic" affiliate marketing networks. Traditional affiliate marketing is resource-intensive and requires continual maintenance. Most of the maintenance includes managing, monitoring, and supporting affiliates. The goal of affiliate marketing is directed toward long-term and mutual beneficial partnerships between advertisers and affiliates. Cost per action networks, however, eliminate the need for the advertiser to build and maintain relationships to affiliates, as that task is performed for the advertiser by the cost per action network. The advertiser makes an offer, almost always CPA-based, and the cost per action networks handle the remainder of the process by mobilizing their affiliates to promote that offer. Cost per sale and revenue sharing are the primary compensation models for classic affiliate marketing, and are rarely found in cost per action networks. Affiliate marketers typically avoid the topic of cost per action networks; however, if it is being discussed, the debates can become heated and explosive.

Marketing term

Members of the marketing industry are recommending that "affiliate marketing" be substituted with an alternative name. Affiliate marketing is often confused with either network marketing or multi-level marketing. Performance marketing is a common alternative, but other recommendations have been made as well.^{[citation needed]}

Sales tax vulnerability

In April 2008 the State of New York inserted an item in the state budget asserting sales tax jurisdiction over Amazon.com sales to residents of New York, based on the existence of affiliate links from New York–based websites to Amazon. The state asserts that even one such affiliate constitutes Amazon having a business presence in the state, and is sufficient to allow New York to tax all Amazon sales to state residents. Amazon challenged the amendment and lost at the trial level in January, 2009. The case is currently making its way through the New York appeals courts.

Cookie stuffing

Cookie stuffing involves placing an affiliate tracking cookie on a website visitor's computer without their knowledge, which will then generate revenue for the person doing the cookie stuffing. This not only generates fraudulent affiliate sales, but also has the potential to overwrite other affiliates' cookies, essentially stealing their legitimately earned commissions.

Click to Reveal

Many voucher code web sites use a click to reveal format, which required the web site user to click to reveal the voucher code. The action of clicking places the cookie on the website visitor's computer. The IAB have stated that "Affiliates must not use a mechanism whereby users are encouraged to click to interact with content where it is unclear or confusing what the outcome will be.",

Affiliate services

• Affiliate programs directories
• Affiliate networks (see also Category:Internet advertising services and affiliate networks)
• Affiliate manager and Outsourced Program Management (OPM or APM) (manages affiliates)
• Category:Internet marketing trade shows

See also

• Broad: Internet marketing, online marketing, online advertising, Website monetizing
• Advertising methods: Web banner, ad filtering, ad serving,central ad server, pop-up ad, contextual advertising
• E-Mail advertising: E-mail spam, e-mail marketing, spamming
• Marketing tactics: Guerilla marketing, marketing strategy and guerrilla marketing warfare strategies, evangelism marketing, word of mouth marketing
• Search engines: Search engine marketing (SEM), search engine optimization (SEO), pay per click, click fraud, paid inclusion
• Industry calculations: Click through rate (CTR), cost per action (CPA), cost per click (CPC), cost per impression (CPI), cost per mille (CPM), effective cost per mille (eCPM)
• Compensation/Pricing: Compensation methods, Category:Compensation, Category:Pricing

External links

• Affiliate Programs at the Open Directory Project
• Website Affiliate Programs at the Yahoo! Directory
• Affiliate Programs at the BOTW Directory
• Online Affiliate Marketing