What is Affiliate Marketing?
Affiliate marketing involves a publisher that makes money by helping a business promote its products or services over the internet. The process is very simple—you write about a product or service in a blog or an article, the customer follows your link and ends up buying it. In return, you get paid for playing your part in advertising or selling the product/service.
The rewards associated with affiliate marketing are entirely performance-based because you as a publisher are only paid for the online traffic that you direct towards the business or the sales that occur after your promotion.
Generally, four players interact in an affiliate marketing industry:
- The Business/Retailer: This is the merchant or the brand that is selling the product. The business rewards the affiliate/publisher for the number of sales or the traffic that it receives due to the promotional activity by the latter.
- The Network: This typically takes care of the mode of payment between the retailer and the affiliate. The network provides different options for the affiliate to choose from.
- Affiliate/Publisher: Includes the player that conducts promotion for the retailer, over the internet. Generally, the endorsement is carried out by publishing promotional blogs and articles on different forums over the web.
- The Customer: These are people who go on the internet to buy different products and services. The affiliate tries to attract such individuals’ attention and direct them toward the retail or enterprise portals.
William J. Tobin, the founder of PC Flowers and Gifts is credited as being the father of affiliate marketing. The general concept of paying commissions for promoting businesses and referring products and services to customers is almost as old as the World Wide Web. November 1994 was the first time when revenue sharing principles were primarily translated into mainstream e-commerce.
Cybererotica’s cost-per-click (CPC) program is considered as the earliest programs of affiliate marketing.
The criterion of payment involved in affiliate marketing varies much from program to program.
Predominant Compensation Methods
Most programs involved in the affiliate marketing use pay-per-sale (PPS) method. This implies that the affiliate is only paid when a sale is made by the merchant. Another scheme that is commonly used is cost-per-action or CPA. Through CPA, the publisher is paid for the traffic it directs towards the business. Other prominent ways include cost-per-click (CPC) or cost-per-mille (CPM).
Multi-tier programs mean that if publisher ‘A’ for a company attracts more publishers (‘B’ and ‘C’) on its own accord, then for all the promotion that publishers ‘B’ and ‘C’ conduct, publisher ‘A’ will also get the reward.
Affiliate marketing has its pros and cons for the advertiser as well as the publisher. The benefits for the advertiser are that most affiliate marketing programs use “Pay for Performance” method—the advertiser only pays when sales occur. However, putting your business reputation in another party’s hands – at times may cause damage to the company.