Affiliate marketing is a form of performance-based marketing where an online business rewards a third party website (the affiliate), every time it brings a customer to their website.
How this is works
A typical affiliate marketing sale is a process involving (most of the time) 4 parties:
The merchant, i.e. the website that is selling a product.
The customer, the person that eventually buys a product
The publisher (also called the affiliate), the person that creates the advert to help the merchant in 1) above.
The affiliate network, which is the platform that acts as a broker between merchant and publisher.
A typical transaction follows this pattern. Firstly, the merchant registers his product within the affiliate’s network platform. The product then gets added to a list of products within the network. Later on a publisher checking the offers of the affiliate network decides to promote the product and prepares a specific advert that he places on different websites. The advert will link to the affiliate network with a specific tracking code in order to identify the publisher.
When a user clicks on the advert he is taken to the merchant’s website where he is able to purchase the product. After the payment is made the publisher and the affiliate network will receive a commission for the transaction.
Commissions for the publishers will vary depending on the products and the platform (typically revenue sharing). For physical products it ranges from 1 to 5 percent. For purely downloadable products (software, e-books, music and video downloads) the commission can rise to 40 percent.
Different business models
There are many variants of the business model described above. Sometimes the merchant and the affiliate network is the same entity as with “Amazon.com Associate program” and sometimes the affiliate network and the publisher are the same as with Kelkoo.com and other price comparison engines.
The publishers commission is in general a percentage of the sale, but sometimes it can be a fixed fee on a specific action of the customer , for example CPA – cost per action or CPC – Cost per click.
The dark side of Affiliate Marketing
The large majority of affiliate marketers are legitimate businesses or individuals. There are however, a percentage of affiliate marketers that are using questionable practices to induce users to visit a merchant’s website (by creating low quality websites and using SPAM as a sales technique).
For example, unscrupulous affiliate marketers can program software robots that create fake Social network profiles automatically. The robots then simulate human activity and create posts with affiliate links. On average an affiliate using this kind of practice can earn between 500 USD to 1,000 USD a day.
A very small percentage fuels SPAM (almost the total of email SPAM produced) and cybercrime. A perfect example is how botnet networks get paid for the SPAM they send. A botnet is a PC compromised by a virus or a trojan that can send email, remotely controlled by a botnet operator. The botnet operator is the organization that infected the PCs with a virus and that is now using them as vectors for Distributed Denial of Service attacks and as SPAM senders.
An illegal business, for example an online pharmacy, will contact a specialized affiliate network (Russian Glavmed is an example). The affiliate network will then contact different spambot operators that will be paid a percentage of the sales that they generate.
Glavmed alone moved 150 millions USD between 2008 and 2010.