Affiliate Marketing 101

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Article by Carsten Cumbrowski, May 30th, 2006, Updated June 7th, 2006, August 20th & 26th, 2006

See also the Wikipedia article to affiliate marketing where I am one of the strong contributers to.

Table of Contents

• Page 1 - History, CPM, PPC/CPC, Contextual, SEM, Pay-Per-Call
  • 1. History of Affiliate Marketing
  • 2. The Pay-Per-Impression / Cost-Per-Mil* (CPM) Model (*Mil = 1000)
  • 3. The The Pay-Per-Click (PPC) / Cost-Per-Click (CPC) Model
  • 4. Contextual Advertising
  • 5. Search Engine Marketing (SEM)
  • 6. The Pay-Per-Call
• Page 2 - CPA, CPS, Affiliate Networks, In-House Programs
  • 7. The Pay-Per-Lead / Cost-Per-Action (CPA), Cost-Per-Lead (CPL) Model
  • 8. The Pay-Per-Sale / Cost-Per-Sale (CPS) Model
  • 9. CPA or CPS?
  • 10. Affiliate Networks
  • 11. In-House Affiliate Program Solutions and Software
• Page 3 - Outsourced (OPM), Conclusion, Resources, Abbreviations
  • 12. Outsourcing - Outsourced (Affiliate) Program Management (OPM/APM)
  • 13. Conclusion
  • 14. Affiliate Marketing Resources
  • 15. Important Industry Specific Abbreviations

1. History of Affiliate Marketing

Invented by cdnow.com at the end of 1994 and pioneered by Amazon.com in 1996, "affiliate programs" - also known as "associate programs" or "partner programs" - are a simple way to generate revenue. The affiliate directs traffic toward what I will call "merchant" sites (sites selling a product or service online). Having an affiliate program is a great way for a merchant site to increase its traffic and revenue.

Because affiliate programs are so convenient and work so well, they have become the industry's dominant method of online marketing.

There are currently four different compensation models for "affiliates" (or Publisher who promotes the Advertisers offers via its own website, newsletter, eZine or other marketing channels) that generate traffic to a merchant (Advertiser) website: pay-per-impression, pay-per-click, pay-per-lead and pay-per-sale or combination of models.

2. The Pay-Per-Impression / Cost-Per-Mil* (CPM) Model (*Mil = 1000)

The merchant site pays the affiliate $x.xx amount of money for every 1000 impressions. An "impression" is NOT a click; it is a page view or display of the ad. The ad can be a text ad, a banner image or rich media.

The CPM compensation model was, for a while, abandoned due to fraud and lack of results. Then, in 2005, Google revived the CPM model with its Google AdWords "site-targeting" feature. This new approach allows an Advertiser to display AdSense ads on websites that run AdSense ads. AdSense publisher websites that allow Advertisers to target their site directly show a small link labeled "Advertise on this site" in the AdSense ad which redirects to a page at Google AdWords that explains the feature.

3. The The Pay-Per-Click (PPC) / Cost-Per-Click (CPC) Model

In this model, the Advertiser pays an affiliate $x.xx amount of money every time a visitor (potential customer) clicks on the Advertiser's ad. It is irrelevant (in terms of compensation) how often an ad is displayed. Commission is due only when the ad is clicked.

Like the Pay-Per-Impression (CPM) model, the Pay-Per-Click (PPC) model was popular during the dot com boom at the end of the 1990s, but - due to rampant problems with click fraud - was mostly abandoned by merchants for advertisements on other websites.

The PPC model was kept alive by the PPC search engine Goto.com, which became Overture.com and is now owned by Yahoo! and renamed from "Yahoo! Sponsored Search" to "Yahoo! Search Marketing."

Google launched its PPC service AdWords in 2000. Ask Jeeves, now simply Ask.com, followed with its PPC service in 2005 called Ask Sponsored Listings, and MSN.com followed in 2006 with AdCenter. Other PPC services are Miva/findwhat.com, ah-ha (now Enhance Interactive) and 7Search.com

4. Contextual Advertising

The big comeback of PPC came when Google launched AdSense in 2003, the birth of contextual advertising. "Contextual Advertising" means that a search engine scans pages to match ads with the context of a page. Google AdWords Advertisers have the choice whether or not they want their ads being displayed on AdSense publisher websites, what Google calls their "Content Network".

To best explain Google AdSense, here is a quote from Google's History at Google's corporate Website. Google AdSense:

"... Offering web sites of all sizes a way to easily generate revenue through placement of highly targeted ads adjacent to their content. Google AdSense technology analyzes the text on any given page and delivers ads that are appropriate and relevant, increasing the usefulness of the page and the likelihood that those viewing it will actually click on the advertising presented there."

Yahoo!'s version of AdSense called Yahoo! Publisher Network (YPN) was launched (beta) in 2005. Microsoft is also working on its own version of AdSense which is expected to be launched (beta) in 2006.

5. Search Engine Marketing (SEM)

Classic PPC search engine marketing is not affiliate marketing. It is an entirely different type of Internet marketing and has only some technical details in common with old PPC/CPC affiliate marketing. Ads are primarily displayed at the search engine search results pages (SERPs) next to organic, free search results.

Contextual advertising introduced with Google AdSense is also not affiliate marketing since there is no direct partnership between the advertiser, who creates and pays for the ad, and the publisher who displays the ads on his website.

PPC and Contextual advertising are generally referred to as search engine marketing (SEM) and is often wrongly confused with search engine optimization (SEO). SEO is about improving the ranking of a site in the organic, free SERPs at major search engines via technical means and deep understanding of the complicated ranking algorithms used by modern search engines.

6. The Pay-Per-Call

This is a new compensation model. No official abbreviation exists yet. The advertiser (merchant) pays the publisher site a flat $x.xx amount in commission for phone calls received from potential customers in response to a specific ad. Recently developed call-tracking technology provides a bridge between online and offline advertising. Pay-Per-Call advertising is still in its infancy.

Pay-Per-Call advertising is neither search engine marketing (SEM) nor affiliate marketing. It is expected to become, within the next few years, the fourth major type of Internet marketing, next to affiliate marketing, search engine marketing and search engine optimization.

Now let's get back to affiliate marketing.

Affiliate marketing has shifted almost entirely to the Pay-Per-Lead (CPA or CPL) and Pay-Per-Sale model (CPS) also known as performance marketing. The paid commission is usually a percentage of the referred sales or a flat dollar amount.

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©2006 Carsten Cumbrowski

Replication of this Article, in full or in parts, without written permission by Carsten Cumbrowski is prohibited.
The original "free to re-print" version of this Article is available for download at several Re-Print Article directories.

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