A Dated Introduction to Online Marketing*

*Note: This is the original version of a whitepaper that was authored in 2001 by iCondotta's founder and principal consultant, Stephan Aarstol. It's a useful primer, but dated - pre-Wikipedia (2001), pre-Google AdWords PPC (2002), way pre-YouTube (2005), you get the picture...

Affiliate Marketing

Affiliate marketing is the online version of a strictly commission sales force. It’s a pure revenue sharing relationship whereby websites promote goods or services from another site on the come (no money upfront). If they refer a customer who turns into a sale, they get a commission of the revenues generated. If they don’t generate any sales, the company selling the goods or services doesn’t incur one cent of expense. Sounds like a pretty good deal for the company selling the goods and services, huh? It is, as long as you can attract a lot of quality affiliate sites.

Most old-school marketing types start salivating when they first look at affiliate marketing. It seems to be the holy grail of marketing – risk-free marketing. Who needs a marketing budget when you only have to pay commissions out of collected revenues? While this cost per action advertising model can be a very powerful component of a comprehensive online marketing strategy, it is not the singular answer to online marketing as many companies believe it to be for a couple of reasons:

1. Making the misguided, yet often touted, marketing stance, “We only do strict revenue share (or cost per action) advertising,” means you’ve effectively eliminated consideration of any of the top, most responsive, advertising channels. Websites that represent the highest quality marketing channels for any given good or service are usually well aware of the value they offer vendors in their industry. Thus, almost all of the quality marketing channels chose not to participate as affiliates because they know they have the privilege of being able to demand traditional advertising rates characterized by the advertiser bearing the majority of the risk. If the advertiser isn’t confident enough that their business model can absorb the risk of advertising and doesn’t want to pay the going rate, then the owners of the quality media channels usually won’t bend over backwards to appease them.

2. Unless affiliates realize somewhat significant compensation on a consistent basis for their participation, they will quickly lose interest and probably discontinue being an affiliate. The untold story of the vast majority of affiliate programs is that affiliates are lucky to realize even modest revenues out of the deal. Many affiliates never even see a dime. The sites offering the affiliate program, on the other hand, can realize great gains in both advertising exposure and sales. What’s more, often times, a good chunk of these sales don’t occur as a direct result of the affiliate efforts (or aren’t adequately tracked to determine the actual referral source), and thus don’t generate a commission payment for the affiliate. Unless the following three requirements are all met, it’s a safe bet that the affiliate isn’t going to make much, if any, revenue from the deal:

• Extremely Relevant - The products and services being offered by the affiliate program must be extremely relevant to the affiliate websites audience
• Extremely Well-Placed - The affiliate banner ads or text ads must be extremely well placed on the affiliate’s website to optimize the click-thru rate. Without an explicit click-thru action, there is no way to tell which web surfers came from which, if any, affiliate site. To put this in perspective, imagine your favorite trade magazine only getting paid by it’s advertisers according to the number of people who fill out and send in the reader service card AND then follow through and make a purchase right away.
• Fair Compensation Policy - The affiliate program must offer fair compensation to the affiliate for sales that are, in fact, a result the affiliates promotional efforts even if the sale is not made immediately following a click-thru from the affiliate site. It’s impossible to account for all possible scenarios, but some affiliate programs offer affiliates compensation for indirect referrals such as when a web surfer click-thru one day and returns directly to the commerce site a week later to actually make the buy. This delayed referral credit policy is called, “Return days,” which is usually tracked by cookies (a small file that is downloaded to a computer’s hard-drive, usually without the user even knowing, that serves as a recognition device upon subsequent visits to a given site).

A successful affiliate program that is built to last can only be achieved if affiliates are well taken care of, or if there is a whole bunch of them and they are too desperate to care. The “too desperate to care” part isn’t a joke. In fact, this is precisely why affiliate programs work so well on the Internet. Sales from affiliate marketing are estimated to represent well over 10% of Internet sales today, and many studies predict this number to grow. The obvious question that you may be asking is, “Why is this so popular if affiliates aren’t making any money?” Quite simply, it is because there is a rapidly growing base of millions and millions of small website owners who feel they haven’t got anything to lose by joining an affiliate program. Worst-case scenario is they don’t make anything, which is exactly where they sit without joining. Best-case scenario, they make a buck or two, and a few sites do relatively well.

The bottom line is that, done right, affiliate marketing is a powerful means to organize small individual contributions by a large number relatively inconsequential websites to achieve an economical and effective sum marketing result. Five affiliates won’t make a dent, five hundred and you’ll see a significant impact, and five thousand means you’ve got a formidable and powerful marketing army.

While you can conceivably develop an affiliate program in-house or integrate an off the shelf solution into your site, for most sellers this is probably more work than it’s worth considering there are many well refined ASP models that will do the leg work and maintenance for a set-up fee, a cut of the revenues, and usually a yearly renewal fee. Two popular affiliate program application service providers are Commission Junction and LinkShare.

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Authored in 2001 by Stephan Aarstol
while Director of Business Development
at AuntMinnie.com