What is Affiliate Marketing?

what is affiliate advertising?

Affiliate Marketing is one of the fastest-growing means of revenue generation out there. It’s fast becoming one of the default ways that not only digital but also traditional businesses promote themselves and their products. 

You may have heard of affiliate advertising, or you may not have. 

But one this is for sure, this is a very misunderstood industry despite the large amount of revenue that it manages to generate for both businesses and affiliates every year. 

So let’s take the time to finally, once and for all, establish what Affiliate Marketing is and what it is not.

In a rush? Head straight to the TL;DR and get just the essentials!

Etymology
Definition
Is it a SCAM?
How it works
Pros
Cons
(Some) Kinds of Affiliate Marketing
Networks
History
Future
Conclusion
TL;DR

Etymology

The word “affiliate” means “associated with,” and this is a crucial distinction between affiliate marketing and most other kinds of marketing. 

Definition

Boiled down, affiliate marketing is essentially a means of marketing whereby a company pays an associated individual (an affiliate) each time he drives a click to the site, a product purchase, a registration, or achieves some other goal that the company has set. 

At its core, Affiliate Marketing is a kind of performance-based marketing. 

That is to say, what someone (in this case, an affiliate) gets paid depends on his ability to reach the goals set by the company.

The “affiliate” is associated with the company in that he has (some kind of contract) with the advertiser, and, as stated above, he is paid based on performance. 

At first glance, an affiliate may seem indistinguishable from an employee with a salary based on commissions, but he is quite different in several capacities.

  1. He has no guaranteed income whatsoever from a given company.
  2. He can work with many companies at once.

Is it a SCAM?

If you have heard of Affiliate Marketing, there is a good chance that you don’t have a very good opinion of it. 

Like so many jobs that can be done from home, it has been massively oversold and overmarketed by smart people looking to make a quick buck at the expense of dumb people looking to make a quick buck.

On Facebook, Twitter, and a host of other platforms, you may have seen the barrage of ads touting “affiliate marketing” or “affiliate advertising” as the greatest – and easiest – way to make money since prospecting for gold. 

If you read a simple book, have a few hours to spare, and, of course, pay some guy 5 easy payments of 39.99, you too can enter the rarified world of Affiliate Advertising!

As you might have guessed, these individuals are just preying on those who need money quickly, are out of work, or simply prone to “get rich quick” schemes. 

9 times out of 10, the information being sold is either already available online for free or no good. 

A significant effect of this cavalier promotion of the industry by unscrupulous bad actors is that the reputation has been somewhat tarnished.

This is further exacerbated by the fact that the barrier to entry is quite low. Most people have a computer and a bank account, and you don’t need much more than that to get started with affiliate advertising. 

The result? A lot of people try it, but very few can “hack it,” as it were. 

But rest assured that Affiliate Marketing is far from a scam. There are skilled affiliates out there making quite a bit of money – it’s just that most of them never bought a 5-part course!

So before going any further, let’s look at how Affiliate Marketing works. 

How it works 

Let’s start with one of the easiest and most common kinds of Affiliate Marketing: the Amazon Affiliate Program.

This is far from the most complicated means of Affiliate Marketing, so we’ll look at a more complicated example as well.

Amazon has, by and large, made excellent use of Affiliate Marketing and is an excellent example of how a company can drive sales using the technique while at the same time taking on minimal risk. 

To become an Amazon Affiliate, one simply has to join the Amazon Affiliate Program. 

Let’s say that you have a blog that you’ve been writing for a long time, just reviewing the books that you read. Over the years, you have developed a loyal following, and the amount of traffic that your site receives has become pretty substantial. 

Further, you’ve also built a substantial email list at the same time. Once per week, you send out an email with a list of reading recommendations.

Were this the case you’d be an excellent potential Amazon Affiliate.

After signing up for the program, you get an Affiliate ID and can make what are called affiliate links. 

What is an affiliate link? It’s a standard URL link, just with a code attached to the end that allows the server to see who sent the click to the site.

What this means is that you can start using these links in your blog posts and your emails. When you recommend a book, you make a hyperlink to the book’s page on Amazon using your affiliate link. 

Then, whenever some clicks on the link, they go to the page, and, should they buy the book, you get a certain percentage of their purchase!

Depending on the Affiliate Program (many companies beyond Amazon have such programs), sometimes you get a percentage of all products added to cart after being sent to the site by your link.

This is just one example of a relatively simple affiliate program. 

Others are much more complicated and involve advanced tracking systems, lots of rules regarding how a given offer* can be advertised, etc. 

*”Offer” is the term generally used for an Affiliate Marketing opportunity with an eventual expiration date. The term is very loosely defined but very broadly used in Affiliate Marketing.

Pros

So what are some of the Pros of Affiliate marketing? First, let’s look at the benefits that Affiliate Marketing offers the affiliate himself.

Easy Access and Low Barrier to Entry

Practically anyone can be an affiliate marketer. There is no required degree, you don’t have to show up to work in the morning, and you don’t have a boss. 

This does, however, mean that a lot of people are going to try their luck in the industry, and it can sometimes be a crowded field. 

High Earnings Potential

This is one of the reasons that so many people are advertising affiliate marketing scam classes and ebooks out there. Yes, one can indeed make huge figures on affiliate marketing. 

But the vast majority don’t. 

A good number of people never make any money since the whole relationship with the advertising partner is based on performance. If you don’t drive any conversions, well, tough luck, it doesn’t matter that you spend 600 dollars on Facebook ads. That money is gone now.

The fact that many fail, however, doesn’t change the fact that the earnings potential here is theoretically unlimited. If one is skilled at the job and doesn’t bite off more than he can chew, then he can make quite a bit of money in the industry. 

Can be done anywhere

Another benefit of Affiliate Marketing is that, on the affiliate end, all you need is a computer. This means that you can do your job from anywhere you’d like so long as there is an internet connection.

You only need to be good at one thing – Marketing

As an affiliate, all you have to do is sell. The actual business that makes the sale is going to be the one responsible for customer service, for delivering the product, etc.

The only thing that you have to do is develop your marketing chops.

These are all real reasons that people do affiliate marketing. But, like most things in the business world, Affiliate Marketing is multi-faceted and wouldn’t work at all if it didn’t benefit all involved.

So, what about the advertising company? 

This article has mostly focused on the perspective of an affiliate. But what are the pros of affiliate advertising for the company?

Use someone else’s know-how

Affiliate Marketing works by motivating other people to sell your product. This person, if he has been in Affiliate Marketing business for a little while, is almost certainly very good at driving customers to a variety of different companies from a vast array of online traffic sources. 

With Affiliate Advertising, there’s no need to be a particularly skilled advertiser or marketer (or to hire one). More often than not, it’s mostly a matter of having the right product, a decent payout, and the ability to find suitable affiliates. 

Only pay when profitable

This is probably the most significant upside of Affiliate Marketing for business and one of the primary reasons that the concept has taken off. 

With Affiliate Marketing, a business pays a fixed price (or percentage, in some cases) for a sale. This means that the cost can be fixed in a way that every transaction is profitable. 

Unlike with traditional marketing on, say, Television or with Google Adwords, a business doesn’t pay for the placement of the ad, but rather for the performance it drives. 

This way, a marketing campaign is almost always going to be profitable – provided you’ve done all your math right. 

Easily scalable

Affiliate Marketing is very scalable. You can quickly onboard new affiliates and, provided the offer is good, an affiliate will generally be more than willing to scale it up if you want – so long as it’s making money for him. 

Cons

Affiliate Marketing has its drawbacks too. It’s not all roses and butterflies; otherwise, it would be the default means of marketing. But it’s not. And that’s because the cons can be substantial. 

So let’s take a quick look at them.

For the Company 

The downsides for the company can be substantial. The most significant drawbacks are volume constraints and brand safety.

Volume constraints

Do you remember how we said that scalability was one of the major pros of this means of marketing? And it is. And this is mainly because there is no limit to how many people can be running your offers or working with you. 

But it’s only scalable – or even workable – if your offer is good enough. If the payout isn’t right, there are a ton of rules attached to it, or if there are very high hard KPIs (key performance indicators) that need to be met, good affiliates might not be chomping at the bit to run your offer.

This means that there are often cases where you can’t use Affiliate Marketing since no high-quality affiliate is going to spend his time developing creative and use his highest quality traffic on your offer. 

This means that a lot of times your offer, if it is not as good as similar offers from competitors, is just going to be fed junk or leftover traffic. 

So it is a balancing act between offering a high enough payout that affiliates will run your offer, but keeping the payout low enough that it’s more profitable than traditional forms of advertising.

Brand safety

One of the significant issues for a lot of companies is the fact that Affiliate Advertising lets a stranger represent your brand to current and potential customers. 

And most companies are conscientious about their brand and have spent a lot of money building it. 

For this reason, businesses need to keep an eye on their affiliate and carefully spell out what they are and aren’t allowed to do with their creative, their pre-lander, etc. Can they use your logo? What kind of images are they allowed to use? What are they allowed to say insofar as a promotion?

Unfortunately, a lot of the advertising techniques that drive clicks are also pretty damaging to brands (incentive, adult, etc.). So businesses need to make sure that their affiliates know what they are allowed to use – and where they can run these ads. 

Fraud

Lastly, there is always the risk of fraud. And this risk is considerable.

Because Affiliates get paid by conversion, there is always the impetus to just fake conversion rather than drive real ones.

This is especially true among CPI offers where an affiliate gets paid for each application install that he brings to a business. This kind of conversion is exceptionally easy to fake, and therefore companies need to be on the lookout.

For this reason, most businesses insist on the ability to confirm transactions before paying the affiliate for them. This way, they can identify fraud and subtract it from the payout. This mitigates their exposure to potential fraud.

For the Marketer

For the marketer, the primary downsides of affiliate marketing are:

Instability and unpredictability

As an affiliate, one has to be always working on getting new campaigns up and finding the latest offers. Offers, even ones that are working well, aren’t going to last forever. They can come and go unpredictably, and none are guaranteed to work. 

And what’s working now could easily fall apart at any given time, and there’s no guarantee whatsoever that you’ll be able to replace that revenue with a different campaign. 

In short, everything in Affiliate Marketing is unpredictable. From whether or not a campaign will work, to when it will stop working, to how many conversions the business is going to cut out due to fraud, etc. 

For these reasons, one always has to be hunting for new offers, trying new publishers, and developing new relationships with clients. 

Opaque relationships

Another drawback is the somewhat opaque relationship that can exist between affiliates and the contracting business. Often they are separated by other affiliates and agencies by a relatively long chain of redirects. 

Further, one often can’t predict how many conversions a client is going to approve, and therefore revenue can be somewhat unpredictable at the beginning of the relationship. 

This can be attenuated by a good Affiliate Manager and by remaining polite with said manager. 

(Some) Kinds of Affiliate Marketing

There are many different kinds of affiliate marketing, and many different means of advertising affiliate offers. Here we are going to look (very quickly) at some of the different types of affiliate marketing. 

“Traditional”

You drive a purchase or registration or some other agreed-upon metric, and you get paid an agreed-upon sum. 

Revenue Sharing

With this payment model, you get paid a certain percentage of the actual value of the conversion that you drove. An example of this would be the Amazon Affiliate Program, where you get paid a certain percentage of the purchase that the customer makes on Amazon after following your affiliate link.

Per Install

This is one of the most common forms of affiliate/performance marketing in general in 2019. For every individual that installs the client’s app, you get paid. 

As noted above, this one often involves a lot of fraud – so it can take a lot more work to fight it effectively.

Lead Generation

This is another kind of payout that is becoming increasingly common. An Affiliate isn’t paid for driving a sale but instead for bringing a potential lead to a client. Since the products eventually sold are generally very high value, the client is willing to pay just for a qualified lead rather than waiting for a sale to finally happen.

Common industries that might pay-per-lead are auto finance, insurance (health, home, auto), private education, and so forth. 

As you can see, the financial transaction between the client and the customer is generally much more substantial than, say, the purchase of yet another phone app. 

For this reason, clients are willing to pay affiliates to bring them leads.

Cost per deposit

This is another common payment criterion in Affiliate Marketing. One isn’t paid until a user that an affiliate has sent to the site deposits some minimum amount of money into their account.

This is a prevalent payment method for betting and gambling apps.

To learn more about payment schemes in Adtech in general, but Affiliate Marketing in particular, check out our in-depth article here.

Affiliate Networks

As you may have guessed, most businesses don’t have the capacity or interest in working with a large number of affiliates. It’s just too time-consuming and most likely aren’t going to be worth the effort. 

Like most things in business, the 80/20 rule applies to affiliates as well. 20% bring 80% of the conversions. 

To avoid having to hire a battalion of affiliate managers, a lot of businesses will offload the entire affiliate department to networks. They sign a contract with a network, and then that network will be responsible for getting the offer in front of affiliates and managing the day-to-day tasks of affiliate marketing (integration, anti-fraud, etc.).

In return, they generally take a small (or large) percentage of the offer before passing it onto the affiliate. 

Oftentimes an offer will pay through multiple layers of affiliates, each taking a percentage of the conversion. This is why affiliates always try to get direct deals or at least keep the number of jumps (the number of redirects) to a minimum. 

History

So, where did this all start? Who came up with the increasingly-profitable idea of Affiliate Marketing? 

Well, it all began in 1994 when a certain William Tobin opened a flower business on the “Prodigy Network.” 

Here he came up with the idea of paying others a commission based on the sales that a given “affiliate” drove for the store. 

From there, the idea took off as CPM and CPC digital marketing developed and affiliate programs. Then networks started sprouting up. 

Now, over 80% of brands use affiliate marketing in some way, and it’s projected to be a 6.8 Billion dollar business in the US alone by 2020. (read more here). 

The Future of Affiliate Marketing

By all measures, the future of affiliate marketing is bright. Perhaps its biggest drawback right now is that so many people are making their living promoting it as something it’s not – an easy way to get rich. 

Affiliate marketing is difficult and, given the number of people that fail at it, it might even be more complicated than the average job. 

The potential upside for the affiliate marketer is enormous. Still, the learning curve can be steep, and the potential for the quick racking up of losses (especially in the beginning), is quite high. 

Nevertheless, there are more and more qualified affiliates and reliable affiliate networks out there that are forging an excellent reputation for the industry and the profession (not to mention driving massive sales for businesses).

For business, giving affiliate marketing a try is much less risky given the fact that one can calculate the maximum they can pay while remaining in profit. 

So beyond brand safety risk, which can be mitigated by choosing good affiliates and good networks, there is way more upside for business than downsides. This is why so many companies, especially digital ones, are opening up affiliate programs.

Conclusion

By now, you should have a pretty good idea of what Affiliate Marketing is and where it fits into the modern digital advertising ecosystem. 

As a rapidly growing industry, it offers a lot of opportunities to those that want to either dive in as affiliates or work in the services aspect of the affiliate industry. 

TL;DR

Affiliate marketing is a marketing strategy that involves allowing an individual or network to market your product or service on their behalf with you only paying for performance. That is to say, you only pay the affiliate for purchases that his marketing efforts drove.


Mobinner is a High-Performance Ad Network and Demand-Side Platform. Since 2017, we’ve been helping our clients build brands, drive conversions, and acquire users. See how Mobinner can help you and your business reach your goals!



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