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The Internet has become an important phenomenon since the beginning of the 21st century. E-commerce has gained a
new foothold in the world of business and marketing. Most importantly, allocating costs to acquiring new customers can
be expensive, even in an online world where costs are much lower than the offline world. After all, you are still spending
money on advertisement and those costs need to be worth the investment in order to continue investing in them.
Would it not be nice to be able to pay for your advertising only when it works? Well, this is a possibility in the online world.
It is performance based marketing, and it is done through affiliate marketing. But what exactly is affiliate marketing? We
will answer that question in the following sections. This eBook is an introduction to affiliate marketing and will answer all
the questions to creating and implementing an affiliate marketing strategy within the larger context of Internet marketing.

What is Affiliate Marketing?

The first question you may be asking yourself is this: what exactly is affiliate marketing? As we stated in the introductory
paragraph, affiliate marketing is a type of marketing that relies on performance and you, as a merchant, only pay when
your advertisement performs well. Affiliate Marketing is performance based marketing, where the rates of advertising depend on how well the advertisement performs.

Traditionally, the Internet has allowed merchants to be able to advertise on certain spaces on the web. This could come
in the form of banner ads within certain websites or email messages. It might also include investing in ads like buying
space at the top of search inquiries for popular search engines like Google or Yahoo!.
The problem with buying space like this is that you, as a merchant, are required to pay a flat fee for something like a
banner ad to be placed on a website. This poses a problem for one main reason. The biggest and most common problem
is that your initial payment for advertising is a bit of a gamble, especially if the site that allows you to advertise is new to
you. You might not know how much traffic the advertisement will produce at first.
And let’s say it does not work out very well. The advertisement did not quite meet expectations and it resulted in very
little traffic to the site and fewer actions taken by prospective clients. At this point, you’ve sunk more money into the
advertisement than what you may have gained back. It is a win-lose situation because the website owner earned money
and you, the merchant, lost money.

All hope is not lost, however. With affiliate marketing, the exposure that you get stays intact just as it would for advertising
through something like a banner ad. The difference, however, is that instead of paying the affiliate upfront, you only pay
the affiliate once some kind of action has been taken, whether through a click or filling out an online form. You could
think of this type of payment as a commission for the affiliate. After all, affiliate marketing is a referral based marketing
strategy, and any increase in traffic means more money for the affiliate. In this way, it makes sense for an affiliate to
promote their merchant; they have an incentive.
As far as affiliate marketing goes, there are certain kinds of models that are used to perform affiliate marketing.

Types of Affiliate Advertising Models

There are three types of affiliate advertising models that merchants and affiliates use when engaging in this type of strategy.
Here is a list of them and brief descriptions of each.

• Cost Per Mil (CPM) – Otherwise known as “Cost per 1000 impressions” (mil = 1000), this model works when a merchant pays a flat fee for every 1000 views or clicks its advertisement receives through an affiliate. This was especially popular at the start of the dot-com boom, but fell dramatically in use as a result of fraudulent increases in view statistics by many companies.
• Cost Per Action (CPA) – Similar to the CPM model, it operates on the same principles. The difference, though, is that the amount a merchant pays to an affiliate is entirely dependent on the performance of the merchant’s advertisement. The factors of performance are the “actions,” which include things like users who click an ad, fill out a form, download software, or buy an item. Rather than having a set amount to pay for a specific number of users, you only pay when the advertisement perform well.
• Cost Per Click (CPC) – Similar to the CPA model, and even more specific within the CPA model, is CPC. The model, like CPA, is dependent on performance, but the factors that determine how much a merchant pays to an affiliate include clicks. This may refer to the amount of times a banner advertisement is clicked, as its name suggests, or the amount of people who visit the URL that is advertised.

As you can see from these models, the marketing strategy behind them is all about performance. But how did these types
of advertising models develop on the web? Let’s take a look at the history behind this type of advertising and marketing.

A Concise History of Affiliate Marketing

In 1996, Amazon.com created one of the first affiliate programs on the web called Amazon Associates program. It was a
program that allowed websites to become affiliates of the main Amazon.com website. The affiliate would place some kind
of link on one of their web pages and allow users to connect to Amazon.com. The point of the link was to entice users
to visit Amazon.com for all their literary needs. This was very beneficial for Amazon’s affiliates because they received a
commission every time one of their users was sent to Amazon.com.

Amazon, Proctor and Gamble, and CDnow are a few of the first websites that offered affiliate marketing programs in the early days of the Internet.

Of course, Amazon was not the first website to implement a program like this. Epage was another website that had a
similar program initiated in the same year, and Proctor and Gamble were able to convince Yahoo! to do initiate a similar
program with their advertisements.
And even earlier than any of these was the website CDnow. In 1994, it placed links on sites that had reviews on artists
and albums. With the idea that reviews existed on the web and users viewed them, they came up with the idea to offer
those same albums to people by placing a link to drive traffic to their site.
The reason these companies are important to mention is because they laid the groundwork for affiliate marketing as we
know today. Affiliate marketing today is also a reminder of the fall of click-through banner ads that saw a sharp decline
in actions taken. That is why affiliate marketing, which exists as exclusively performance based, is essential and beneficial
to an Internet marketing strategy.
Now that we have covered this bit of history, let’s go back to affiliate marketing and take a look at the roles that companies
and websites play.

The Roles in Affiliate Marketing

Affiliate marketing between companies is a symbiotic relationship. It is a win-win situation for both affiliates and merchants, but what are these roles that websites take on? Let’s take a look at the roles of affiliates and merchants.

Merchants
If you have a company and website, and you sell a product or service, you are a merchant. The merchants are the companies that sell a product and/or service, and they are the ones that pay affiliates for their marketing campaigns. Chances are that you are going to want to form relationships across the web with affiliates.
In other words, you are most likely the merchant if you are starting to form an Internet marketing strategy. When you
form affiliate partnerships, that affiliate is going to make give you space on one or more of their web pages to place a
link or even a banner advertisement. The link will allow users to come to your site, yielding higher amounts of traffic.
Of course, simply getting customers to visit your site is not enough. Keeping them there is a whole other issue, which we
will explain in a further chapter.
Affiliates
What is an affiliate? You may have heard the term before, perhaps on radio broadcasts or between tv shows on commercials.
In the online world, affiliates are the website owners or even bloggers who allow a merchant to advertise on their site or
blog, respectively. They are the ones that get paid whenever an ad performs, so it is in their best interest to have merchants
with which they have an affiliate partnership Of course, it takes a little bit of work on the part of an affiliate to keep a relationship with a merchant. After all, if a website owner does not have a lot of incoming traffic, it will not hold the favor of merchants enough and the affiliate may lost the relationship and end up losing part of his income. Most likely, affiliates do not sell products or services themselves, but they might. They also might be affiliates for multiple merchants at one time, advertising products or services that they believe their readers or visitors will want to purchase. So now that we have become better acquainted with the roles of affiliate marketing, let us take a look at the benefits of
doing affiliate marketing.

The Benefits of Affiliate Marketing

There are many benefits to getting into an affiliate partnership, whether you take on the role of merchant or affiliate. Keep
in mind when thinking about these benefits the fact that the Internet has become a highly collaborative space, especially
with social media taking such a dominant presence on the web today. Affiliate marketing is effective because of the collaboration that goes on within partnerships, especially with social media becoming a dominant presence on the web.

Partnerships and Collaboration
As we mentioned before, the relationship between affiliate and merchant is a symbiotic one. Both affiliate and merchant
benefit from having an affiliate partnership with each other.
With affiliates, there is the fact that web hosting fees may be paid through the income earned from being an affiliate and
some affiliates can actually earn a substantial income from the merchants they work with. This does not mean, however, that it is as simple as signing up for an affiliate program. The affiliate has an incentive to get traffic delivered to the merchant’s site. When done well, the affiliate also benefits by being credited with the sale or lead.

Merchants have solved the Click and Bye process by crediting affiliates with sales made
or leads produced.

This is actually one of the original problems that occurred and made affiliates question their role in affiliate partnerships.
They might say to themselves “I am sending traffic to their site, but that means I am losing traffic.” This is called Click
and Bye, which means an affiliate might lose a viewer to its bigger merchant via a textual link or banner.
Merchants, though, recognized this problem and came up with the solution to credit affiliates when a successful sale
was made or a new customer signed up with their website or newsletter. As you can see, affiliates and merchants must
constantly adapt to make affiliate marketing work for them.

The benefit for merchants through this relationship is that they get new traffic and potential customers they might not
otherwise have access to by advertising on affiliate websites. Best of all, their advertising dollars are only spent when they
successfully make a sale through an affiliate.
Of course, merchants must be wary of how they advertise. It takes much more than having affiliates to making affiliate
marketing work. An affiliate marketing strategy is only working if the affiliate can successfully send new prospects your
way. So, when you think about who you want your affiliate to be, this is one of the factors to consider. Ask yourself if
the website is sending enough traffic for the amount you spend. Is you return on investment (ROI) in the black or red?
A merchant must be diligent in his approach to making an affiliate marketing strategy work. The affiliates have to deliver.
This is another great benefit for merchants; they have a choice in who they want as their affiliates. A smart merchant will
be able to gain an affiliate relationship with websites that are in line with their product or service.

Affiliate Program

Below is a list of popular affiliate “marketplaces” where you can get help managing your affiliate programs. You can register with them for a flat fee. The most popular include:

• ClickBank
• Commission Junction (CJ.com)
• PayDotCom
• AffiliateMarketplace
• Click2Sell
• PayGear

You will need to register with these sites and then people who want to be your affiliates will be able to find you. Of course,
you can manage your own affiliate program, but when you are first experimenting with affiliate marketing it will probably
be easier for you to use one or more of these services. Affiliate marketplaces are a great way for amateur companies to get into the affiliate marketing game with little risk.

Now before signing up for one of these affiliate “marketplaces” (or creating your own), we will go through a rundown of
the things you should consider when establishing an affiliate program.