Affiliate marketing

Affiliate marketing is a type of performance-based marketing in which a business rewards one or more
affiliates for each visitor or customer brought by the affiliate's own marketing efforts.[1][2][3][4][5]

Contents
Structure
History
Origin
Historic development
Web 2.0
Compensation methods
Predominant compensation methods
Diminished compensation methods
Performance/affiliate marketing
Multi-tier programs
From the advertiser's perspective
Advantages for merchants
Implementation options
Affiliate management and program management outsourcing
Types of affiliate websites
Publisher recruitment
Locating affiliate programs
Past and current issues
E-mail spam
Malicious browser extensions
Search engine spam
Adware
Trademark bidding
Compensation disclosure
Lack of industry standards
Certification and training
Code of conduct
Sales tax vulnerability
Cookie stuffing
Click to reveal
See also
References
External links
Structure
The industry has four core players:

the merchant (also known as 'advertiser' or 'retailer' or 'brand')

the network (that contains offers for the affiliate to choose from and also takes care of the
payments)
the publisher (also known as 'the affiliate')
the customer

The market has grown in complexity, resulting in the emergence of 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 (SEO), paid
search engine marketing (PPC – Pay Per Click), e-mail marketing, content 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 is commonly confused with referral marketing, as both forms of marketing use third
parties to drive sales to the retailer. The two forms of marketing are differentiated, however, in how they
drive sales, where affiliate marketing relies purely on financial motivations, while referral marketing relies
more on trust and personal relationships.

Affiliate marketing is frequently overlooked by advertisers.[6] While search engines, e-mail, and web site
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 in
November 1994,[7] almost four years after the origination of the World Wide Web.

The concept of affiliate marketing on the Internet was conceived of, put into practice and patented by
William J. Tobin, the founder of PC Flowers & Gifts. Launched on the Prodigy Network in 1989, PC
Flowers & Gifts remained on the service until 1996. By 1993, PC Flowers & Gifts generated sales in excess
of $6 million per year on the Prodigy service. In 1998, PC Flowers and Gifts developed the business model
of paying a commission on sales to the Prodigy Network.[8][9]

In 1994, Tobin launched a beta version of PC Flowers & Gifts on the Internet in cooperation with IBM, who
owned half of Prodigy.[10] By 1995 PC Flowers & Gifts had launched a commercial version of the website
and had 2,600 affiliate marketing partners on the World Wide Web. Tobin applied for a patent on tracking
and affiliate marketing on January 22, 1996, and was issued U.S. Patent number 6,141,666 on Oct 31, 2000.
Tobin also received Japanese Patent number 4021941 on Oct 5, 2007, and U.S. Patent number 7,505,913 on
Mar 17, 2009, for affiliate marketing and tracking.[11] In July 1998 PC Flowers and Gifts merged with
Fingerhut and Federated Department Stores.[12]
In 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 might be interested in purchasing.
These websites could also offer a link that would take visitors directly to CDNow to purchase the albums.
The idea for remote purchasing originally arose from conversations with music label Geffen Records in the
fall of 1994. The management at Geffen wanted to sell its artists' CD's 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.[13]

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.[14]

When visitors clicked on the associate's website to go to Amazon and purchase 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.[15][16]

In February 2000, Amazon announced that it had been granted a patent[17] 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.[18]

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.[19] 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.[20]

In 2006, the most active sectors for affiliate marketing were the adult gambling, retail industries and file-
sharing services.[21]:149–150 The three sectors expected to experience the greatest growth are the mobile
phone, finance, and travel sectors.[21] 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.[21]:149–150

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. These platforms allow improved
communication between merchants and affiliates. Web 2.0 platforms have also opened affiliate marketing
channels to personal bloggers, writers, and independent website owners. Contextual ads allow publishers
with lower levels of web traffic to place affiliate ads on websites.

Forms of new media have also diversified how companies, brands, and ad networks serve ads to visitors. For
instance, YouTube allows video-makers to embed advertisements through Google's affiliate network.[22][23]
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.

Compensation methods

Predominant compensation methods

Eighty percent of affiliate programs today use revenue sharing or pay per sale (PPS) 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, cost per estimated 1000 views).[24]

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 or her website and
display it to the page 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 the 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.

Performance/affiliate marketing

In the case of cost per mille/click, the publisher is not concerned about whether a visitor is 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 cannot 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 a commission. The advertiser must convert that visitor first. It is in the best interest of
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 are 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 objectives.[25] 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 either a) signs the contract, or b) 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 associations tend to have more complex commission
requirements/qualifications than standard affiliate programs.

From the advertiser's perspective

Advantages for merchants

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).[26]

Implementation options

Some merchants run their own (in-house) affiliate programs using dedicated software, while others use
third-party intermediaries to track traffic or sales that are referred from affiliates. There are two different
types of affiliate management methods used by merchants: standalone software or hosted services, typically
called affiliate networks. Payouts to affiliates or publishers can be 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

Uncontrolled affiliate programs aid rogue affiliates, who use spamming,[27] trademark infringement, false
advertising, cookie stuffing, typosquatting,[28] and other unethical methods that have given affiliate
marketing a negative reputation.

Some merchants are using outsourced (affiliate) program management (OPM) companies, which are
themselves often run by affiliate managers and network program managers.[29] OPM companies perform
affiliate program management for the merchants as a service, similar to the role an advertising agencies
serves in offline marketing.

Types of affiliate websites

Affiliate websites are often categorized by merchants (advertisers) and affiliate networks. There are
currently no industry-wide 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)
Price comparison service websites and directories
Loyalty websites, typically characterized by providing a reward or incentive system for
purchases via points, miles, cash back
Cause Related Marketing 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 websites syndication feeds
E-mail marketing 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 with their own network of affiliates
Websites using adbars (e.g. AdSense) to display context-sensitive advertising for products on
the site
Virtual currency that offers advertising views in exchange for a handout of virtual currency in a
game or other virtual platform.
File-Sharing: Web sites that host directories of music, movies, games and other software.
Users upload content 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 websites that host the directory services sell
advertising and do not host the files themselves.
Video sharing websites: YouTube videos are often utilized by affiliates to do affiliate marketing.
A person would create a video and place a link to the affiliate product they are promoting in the
video itself and within the description.

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 (such as with pyramid schemes).

Almost any website could be recruited as an affiliate publisher, but high traffic websites are more likely
interested in (for their sake) low-risk cost per mille or medium-risk cost per click deals rather than higher-
risk cost per action or revenue share deals.[30]
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. 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.

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.[31] As affiliate marketing
matured, many affiliate merchants have refined their terms and conditions to prohibit affiliates from
spamming.

Malicious browser extensions

A browser extension is a plug-in that extends the functionality of a web browser. Some extensions are
authored using web technologies such as HTML, JavaScript, and CSS. Most modern web browsers have a
whole slew of third-party extensions available for download. In recent years, there has been a constant rise
in the number of malicious browser extensions flooding the web. Malicious browser extensions will often
appear to be legitimate as they seem to originate from vendor websites and come with glowing customer
reviews.[32] In the case of affiliate marketing, these malicious extensions are often used to redirect a user's
browser to send fake clicks to websites that are supposedly part of legitimate affiliate marketing programs.
Typically, users are completely unaware this is happening other than their browser performance slowing
down. Websites end up paying for fake traffic numbers, and users are unwitting participants in these ad
schemes.

Search engine spam

As search engines have become more prominent, some affiliate marketers have shifted from sending e-mail
spam to creating automatically generated web pages that often contain product data feeds provided by
merchants. The goal of such web pages 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.[33]

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".[34] 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.

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,[35] LinkShare's Anti-
Predatory Advertising Addendum,[36] and ShareASale's complete ban of software applications as a medium
for affiliates to promote advertiser offers.[37] 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.[38]

Trademark bidding

Affiliates were among the earliest adopters of pay per click advertising when the first pay-per-click search
engines 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 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.[39]
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.

Compensation disclosure

Bloggers and other publishers may not be aware of disclosure guidelines set forth by the FTC. Guidelines
affect celebrity endorsements, advertising language, and blogger compensation.[40]

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.[41]

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,[41] or suggest
strategies no longer endorsed or permitted by advertisers.[42]

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.[43]

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

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.

Sales tax vulnerability

In 2008 the state of New York passed a law asserting sales tax jurisdiction over Amazon.com sales to New
York residents. New York was aware of Amazon affiliates operating within the state. In Quill Corp. v. North
Dakota, the US Supreme Court ruled that the presence of independent sales representatives may allow a
state to require sales tax collections. New York determined that affiliates are such independent sales
representatives. The New York law became known as "Amazon's law" and was quickly emulated by other
states.[44] While that was the first time states successfully addressed the internet tax gap, since 2018 states
have been free to assert sales tax jurisdiction over sales to their residents regardless of the presence of
retailer affiliates.[45]

Cookie stuffing
Click to reveal

Many voucher code web sites use a click-to-reveal format, which requires the web site user to click to reveal
the voucher code. The action of clicking places the cookie on the website visitor's computer. In the United
Kingdom, the IAB Affiliate Council under chair Matt Bailey announced regulations[46] that 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."

See also
Affiliate tracking software
Internet advertising: E-mail spam, e-mail marketing, post-click marketing, Website monetizing
Advertising methods: Ad filtering, ad serving, central ad server, pop-up ad, contextual
advertising, web banner
Marketing tactics: Guerilla marketing, marketing strategy, evangelism marketing, viral
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)

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External links
Affiliate marketing (https://curlie.org/Business/Opportunities/Online_Opportunities/Affiliate_Pro
grams) at Curlie
Affiliate Programs (http://botw.org/top/Computers/Internet/Web_Design_and_Development/Aut
horing/Webmaster_Resources/Affiliate_Programs/) at the BOTW Directory

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