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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. Affiliate marketing may overlap with other Internet marketing methods, including organic search engine optimization SEO , paid search engine marketing PPC — Pay Per Click , e-mail marketing , content marketing , and display advertising.

Affiliate marketing is frequently overlooked by advertisers. Still, affiliates continue to play a significant role in e-retailers’ marketing strategies. 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 , 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 applied for a patent on tracking and affiliate marketing on January 22, , and was issued U. Patent number 6,, on Oct 31, Tobin also received Japanese Patent number on Oct 5, , and U. Patent number 7,, on Mar 17, , for affiliate marketing and tracking. 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 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 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. 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. In February , Amazon announced that it had been granted a patent [16] on components of an affiliate program. 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.

In , the most active sectors for affiliate marketing were the adult gambling, retail industries and file-sharing services. 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.

Websites and services based on Web 2. These platforms allow improved communication between merchants and affiliates. Web 2. 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. Emerging black sheep are detected and made known to the affiliate marketing community with much greater speed and efficiency.

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 views.

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.

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.

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 is absorbed by the affiliate who funnels their traffic to the campaign normally a landing page. In the case a conversion is not fired the publisher won’t receive any compensation for the traffic. 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.

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.

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. 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 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. Uncontrolled affiliate programs aid rogue affiliates, who use spamming , [24] trademark infringement , false advertising , cookie stuffing , typosquatting , [25] 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. 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. 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. 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.

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. A browser extension is a plug-in that extends the functionality of a web browser.

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. 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. 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 —the final stage of Google’s major update “Jagger” that began in mid-summer —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 there were active changes made by Google, where certain websites were labeled as “thin affiliates”. 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.

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.

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. 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 s.

Later in 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.