Affiliate marketing

From Wikipedia, the free encyclopedia

Affiliate marketing is a method of promoting web businesses in which an affiliate is rewarded for every visitor, subscriber, customer, and/or sale provided through his/her efforts. It is a modern variation of the practice of paying a finder's fee 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.

Merchants like affiliate marketing because it is a "pay for performance model", meaning the merchant does not incur a marketing expense unless 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.^{[citation needed]}

Merchants who are considering adding an affiliate strategy to their online sales channel have 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.

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 (see outsourced program management.)

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. ^[1] 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. ^[2]

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. A lot of different offers from various Advertisers are available to pick from. 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.

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 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.

Types of Affiliate Sites

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
• 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
• 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)

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.

A Brief History of Affiliate Marketing

This is a citation from the book "Successful Affiliate Marketing for Merchants" from Shawn Collins of AffiliateTip.com and ^[3] which describes how affiliate marketing on the internet came into being.

Compensation Models

The following compensation models are relevant for affiliate marketing.^[4]

Pay-per-impression (PPI) / Cost-per-thousand (CPM)

Cost-per-mil (mil/mille/M = latin/Roman numeral for thousand) 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 (PPC) / Cost-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 (PPL) / Cost-per-action/acquisition (CPA) / Cost-per-lead 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 (web site) 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 internet service providers, cell phone providers, banks (loans, mortgages, credit cards) and subscription services.

Pay-per-sale (PPS) / Cost-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. This form of compensation is also referred to as Revenue sharing.

Pay-per-call (no abbreviation exists yet)

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.

Finding Affiliate Programs

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.

Affiliate Management and Program Management Outsourcing

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^[5], trademark infringement, false advertising, "cookie cutting", typosquatting^[6] etc.).

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.^[7]

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.

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 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" 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 did Google launch their PPC service AdWords which is responsible for the wide spread use and acceptance of PPC as 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.

Lag 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 the reason 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^[8] 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.

CPA Networks "Threat"

Affiliate marketer 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. ^{[9] [10] [11]} The discussion is about CPA Networks 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^[12] 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, ^[13] 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.^[14][15]

Important Abbreviations

The following abbreviations are commonly used in affiliate marketing.^[4]

• AD - Advertisement, text, banner, flash, video etc.
• CPA - Cost per action
• CPC - Cost per click
• CPL - Cost per lead
• CPM - Cost per mil (mil/mille/M = latin/Roman numeral for thousand)
• 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 100 clicks
• OPM - (or APM) - outsourced (affiliate) program management
• PFI - Pay for inclusion
• PFP - Pay For performance
• PPC - Pay per click
• PPCSE - Pay per click search engine
• PPI - Pay per impression
• PPL - Pay per lead
• PPS - Pay per sale
• 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

References

1. ^ Affiliate Marketing Networks Buyer's Guide (2006) by e-Consultancy.com
2. ^ Affiliate Summit 2006 Wrap-Up Report -- Commissions to Reach $6.5 Billion in 2006 By Anne Holland, Publisher, MarketingSherpa, Jan 11, 2006
3. ^ Frank Fiore and Shawn Collins, "Successful Affiliate Marketing for Merchants" , from pages 12,13 and 14. QUE Publishing, April 2001 ISBN
4. ^ ^{a b} Affiliate Marketing 101, May, 2006
5. ^ The Daily SearchCast News at WebmasterRadio.fm, June 27., 2006
6. ^ NEW FIRST: LinkShare- Lands' End Versus The Affiliate on Typosquatting at ReveNews.com, September 06, 2006
7. ^ Revenue Magazine - Article: "Going Out Is In" , Issue 12. , July/August 2006 Montgomery Research Inc
8. ^ Affiliate Marketing Organization Initiative Vol.2 - We are back to Step 0, Reve News, November 04, 2006
9. ^ Are CJ and Linkshare Worth Their Salt?, Article and Interview at CostPerNews.com, November 15, 2006
10. ^ Affiliate Networks vs CPA Networks, Official Statements to CostPerNews.com Post on 11/15/2006 and comments, November 17, 2006
11. ^ There Must Be a Better Way, Thread at ABestWeb Affiliate Marketing Forums, January 2006
12. ^ Profit Sharing - The Performance Marketing Model of the Future, Vinny Lingham's Blog, 10/11/2005
13. ^ Affiliate Marketing Lacks A Brand - Needs A New Name, Reve News, November 18, 2006
14. ^ Congratulations! You're A Search Engine Marketer!, Search Engine Watch, November 5, 2001
15. ^ Search Engine Marketing: You Like It, You Really Like It, Search Engine Watch, December 3, 2001

Affiliate Services

• Affiliate programs directories
• Affiliate networks

See also

• Affiliate, Internet marketing or online marketing / online advertising
• Web advertising: web banner, Ad filtering, ad serving,central ad server, pay per click, pop-up ad, click fraud, contextual advertising
• E-Mail advertising: e-mail spam, opt-in e-mail advertising, spamming
• Guerilla marketing, marketing strategy and guerrilla marketing warfare strategies
• Search engines: Search engine marketing (SEM), Search engine optimization (SEO)
• Evangelism marketing or Word of mouth marketing

• Industry calculations: Click through rate (CTR), cost per action (CPA), Effective Cost per action|effective cost per action (eCPA), cost per click (CPC), cost per impression (CPI), cost per mil (CPM), effective cost per mil (eCPM)

External links

• Affiliate Programs at the Open Directory Project
• Website Affiliate Programs at the Yahoo! Directory