Affiliates

Affiliates are defined as any association between two companies or organizations that is short of a parent- subsidiary tie. An affiliate program is a form of advertising on the web that rewards the affiliates for driving traffic to the advertiser or for subsequent transactions. An affiliate program uses a multi-level marketing concept where consumers (affiliates) attract additional consumers.

Some affiliate programs are multi-tiered, thus increasing the income earning opportunities for the affiliates. Marketers have the option of developing their very own in-house program, such as Amazon.com. Or they may join one or more of the large networks, like CommissionJunction.com. Affiliates have the potential to earn significant amounts of money, if they manage things correctly.

Affiliate programs are a way for sites to pay for incoming traffic. When Site1 links to Site2, there is a means for Site2 to pay a referral fee to Site1, depending on who follows the link and how valuable they are to site2. Site1 is called an affiliate, because it's allied with Site2 and uses it to provide a service to its users.

The Strengths of Affiliates Programs Affiliates programs are suited perfectly for the Web, because they provide an avenue to let value flow along the links. Value always moves forward with a link since users follow links, and as a result provide additional business to the destination site. But what about the referring site? Without an affiliates program, the only way a company gets rewarded for providing an outbound link is very indirect: a well-chosen link is a service to the users who will appreciate being pointed to something helpful. Therefore, a site that links effectively has a higher chance of being revisited in the future because users will see it as an important resource and give it some percentage of the credit for the benefits they got from surfing to the destination site. A perfect example of this success is Yahoo.com, who proved this theory. In the beginning before search engines, Yahoo was nothing but a collection of links and user kept coming back. Looking back this was clearly visionary and revolutionary.

Affiliate programs make the backward value of linking clear and therefore compensate sites for contributing to a more cross-referenced Internet. They cause the Web to be more useful since even small sites can link to additional services that they don't have the resources to provide. For example, we don't want to keep books in our office, yet we can help our readers by recommending books that we like in areas of expertise. Not only can we recommend books, users may buy them, and we get paid a percentage of the sale, often 5-10% of the entire purchase. That sure adds up over time. Now from the perspective of the destination web site, affiliates programs work for various reasons, we have listed several below:

• They provide qualified leads since the users who follow links from other sites are the kind of people who are likely customers (assuming the referring site has targeted content), they have a reason for coming, and they have been told what to expect (assuming that the referring site writes good explanatory links).
• It's only necessary to pay for performance. Nothing needs to be paid if there is no click-through. The referral fee is usually based on the value derived from the visitor, so nothing needs to be paid for a user who doesn't buy anything.
• Because affiliates programs are based on pay-for-performance, it makes sense for the destination site to sign up as many small sites as affiliates. If the site doesn't send any traffic, there is no cost. And the computer keeps track of the referrals, so there is no need to manually negotiate complex deals or have other overhead that normally makes it expensive to have small partners.

The Weaknesses of Affiliates Programs Positives can become negatives. Because sites get paid to link, there's the lure of adding too many links. Every extra interface element is a thing for users to view, so links should be only included when they add value to the user.

Also, there's a temptation to link to things that you wouldn't really recommend, just because you get paid to do so. A closer analysis shows us that the user's trust is the most valuable element for a website and that it would be stupid to jeopardize the long-term survival of the site for a quick buck.

As the old saying goes, "you can fool some people some of the time, but you can't fool all of the people all of the time". So in other words, a few users may buy a bad product because of your link, but soon people will stop taking your recommendations, and they may even stop using your site. Now even though strategic factors impose the discreet use of linking, even for paid links, the person creating a page on any web site may be tempted.

Some categories of products and services lend themselves more to affiliate programs than others. Books are a good example because there are books about areas of special interest. Thus, every site will have some books to recommend within its area of expertise. And there is value added from the recommendations, since the specialized site will know more about the books than the more generic advice possible at a general site.

Most categories would work only with a more targeted set of affiliates. For example, hockey sticks. I would have no credibility if I started recommending a source of hockey sticks and the users of my site would not constitute qualified leads for a site selling basketball shoes. But specialized sites for professional hockey players or for hockey enthusiasts could join an affiliate program such as this. There would only be a few sites that sold the supplies but many sites that covered relevant topics and that could turn into affiliates.

International affiliates programs have problems due to currency conversion. It's also common for users to prefer to receive service from local sites instead of overseas ones. The destination site needs to be able to handle international customers and transition transparently between its different services, ensuring appropriate referral fees no matter which one the originating site links to.

One last weakness is the lack of transparency and the difficulty in finding and setting up affiliates programs. It's tough to track down which sites offer affiliates programs, and many sites still don't have one. It's also difficult to judge the terms and conditions and to assess which programs are the fairest. There are no standards for referral fees or easy ways of comparing programs.

There is still a lot of overhead in signing up for programs. This should be a fully computerized process, but people must fill in forms manually every time they want to register for new programs. There is no centralized way of joining and managing affiliates programs. The overhead makes it impractical for a site to join an affiliate program for a single link or a small deal. The destination site also has administrative overhead in mailing out small checks since each destination site has to pay each referring site on its own.

The Future of Affiliates Programs Less overhead, we will get a central site that manages affiliates programs. This will make it easy to establish a program and easier for referring sites to join. It will be feasible to join for a single link since you can simply use your universal id. And payments will be centralized, so payments of a penny become possible.

Affiliates programs get integrated with micro payment plans. Then they will be used not just for the sale of products, but for the sales of content and services.

Advanced programs will support multi-level referral fees. Currently, only the site that made the final link for the money-making transaction gets any referral fee. But how about the site that guided the user to the referring site? Nothing!

Not all programs should be based on the money. As long as cash is the only form of payment, it's only feasible to compensate for links that generate sales. But there are benefits from links that promote user loyalty or repeat traffic.

We might see a type of shop-bot affiliate program that allows the referring site to unbundle the recommendations of products and suppliers. Currently, I have to recommend a book and a bookseller in the same link. In the future, it should be possible to recommend the book and link to a shop-bot that would add a recommendation of where to buy the book. The resulting sales commission should be split between the recommender of the product and the recommender of the provider selling that product. An unbundling of product recommendation and supplier recommendation would also handle the problem with referring international users to a vendor in their own country.

Lastly we predict a trend that would reveal increased focus on the lifetime value of a referred customer instead of the narrow focus on immediate sales. For example, if I link a user to a site today but they don't buy anything until Friday, I should still get a referral fee. We need to think about ways of tracking and adjusting the value of a user over time. It might be smart to have a higher referral rate for the users' first purchases and lower rates for subsequent ones, which would be similar to sales commissions in the real world.

History of Affiliates Programs Amazon may be the most famous of all programs, but they were not the first affiliates program. An early sports site, www.S2.com, used referral fees in the summer of 1994. Yes, you read correctly, 1994! Even if they based their statistics on hit counts. Jeff Scott, now the Internet Architect for NETdelivery Corporation, tells the story from his perspective:

"Myself and a co-author built the first Aspen Skiing Company web site for four ski areas, an outdoor sandal company, two ski retailer sites and four ski manufacturer sites and a bunch of smaller ski industry vendors. This all happened in the spring and summer of 1994.

We were working in the Small Works Lab of Bill Joy's in Aspen, Colorado. In this frenzy of development we also had been working on a venture going under the auspices of www.S2.com. S2 stood for SportSource. Our attention was promoted with the affiliate idea in mind to drive viewers respectively between all of these sites in some fashion. We had a raw attempt at banner placement and even a rotating ad selection script that drew graphics based on where the visitor had linked from. S2 was written up as the first and foremost Action Sports Site on the web by several authors that produced soft-cover books with lists of web sites. We all can remember those, can't we?

Anyway, our model was a success for driving visitors between content of the involved and participating sites. The bonus for us was the "borrowed landscape" idea that, since we were developing the content for all these sports related sites, if we shared that content in a general area and it had a different appeal than the directness of a particular vendor, our revenue went up since all participating sites were paying for the click through (hits at that time), for the traffic. We had a great model, site hosting, development, maintenance, internet consulting, ad development and click through revenue all from two dozen sites or more.

Wow, as I write this and remember the excitement and frenzy of that summer... so much has evolved in the industry, now it seems like second nature to us all only ten years later."