Display advertising Interactive advertising Email marketing Web analytics Cost Per Action Revenue sharing Contextual advertising Search engine optimization Social media optimization Pay Per Click advertising Paid inclusion Affiliate marketing is a method of promoting web businesses (merchants/advertisers) in which an affiliate (publisher) is rewarded for every visitor, subscriber, customer, and/or sale provided through his/her efforts.
Affiliate marketing is also the name of the industry where a number of different types of companies and individuals are performing this form of internet marketing, including affiliate networks, affiliate management companies and in-house affiliate managers, specialized 3rd party vendors and various types of affiliates/publishers who utilize a number of different methods to advertise the products and services of their merchant/advertiser partners.
Affiliate marketing overlaps with other internet marketing methods to some degree, because affiliates are using the same methods as most of the merchants themselves do. Those methods include organic search engine optimization, paid search engine marketing, email marketing and to some degree display advertising.
Affiliate marketing - using one site to drive traffic to another - is the stepchild of online marketing. While search engines, e-mail and RSS capture much of the attention of online retailers, affiliate marketing, despite lineage that goes back almost to the beginning of online retailing, carries a much lower profile. Yet affiliates continue to play a fundamental role in e-retailers' marketing strategies.

Compensation methods
80% of affiliate programs today use revenue share (Cost per sale) as compensation method. The remaining 19% use Cost Per Action.

Predominant compensation methods in affiliate marketing
The use of pay per click and pay per impression (CPM) in traditional affiliate marketing is far less than 1% today and negligible.
CPM requires from the publisher only to load the advertising on his website and show it to his visitors in order to get paid commission, while PPC requires one additional step in the conversion process to generate revenue for the publisher. Visitors must not only made aware of the ad, but also pursue them to click on it and visit the advertisers website.
CPC used to be more common in the early days of affiliate marketing, but diminished over time due to click fraud issues that are very similar to the click fraud issues modern search engines are facing today. Contextual advertising, such as Google AdSense are not considered in this statistic. It is not specified yet, if contextual advertising can be considered affiliate marketing or not.

Diminished compensation methods
Pay per click is predominant as compensation model for pay per click search engines and their contextual advertising platforms, while pay per impression is the predominant compensation model for display advertising. CPM is used as compensation method by Google for their AdSense/AdWords feature "Advertise on this website", but an exception in search engine marketing.
While search engines only recently started experimenting with compensation structures of traditional affiliate marketing, such as pay per action/CPA,

Compensation methods for other online marketing channels
In the case of CPM or CPC, the publisher does not care if the visitor is the type of audience that the advertiser tries to attract and is able to convert, because the publisher already earned his commission at this point. This leaves the greater, and, in case of CPM, the full risk and loss (if the visitor can not be converted) to the advertiser.
CPA and CPS require that referred visitors do more than visiting the advertisers website in order for the affiliate to get paid commission. The advertiser must convert that visitor first. It is in the best interest for the affiliate to send the best targeted traffic to the advertiser as possible to increase the chance of a conversion. The risk and loss is shared between the affiliate and the advertiser.
For this reason affiliate marketing is also called "performance marketing", in reference to how employees that work in sales are typically being compensated. Employees in sales are usually getting paid sales commission for every sale they close and sometimes a performance incentives for exceeding targeted baselines. Affiliates are not employed by the advertiser whose products or services they promote, but the compensation models applied to affiliate marketing are very similar to the ones used for people in the advertisers' internal sales department.
The phrase, "Affiliates are an extended sales force for your business", which is often used to explain affiliate marketing, is not 100% accurate. The main difference between the two is that affiliate marketers cannot, or not much influence a possible prospect in the conversion process, once the prospect was sent away to the advertisers website. The sales team of the advertiser on the other hand does have the control and influence, up to the point where the prospect signs the contract or completes the purchase.

CPM/CPC versus CPA/CPS (performance marketing)
Some advertisers offer multi-tier programs that distribute commission into a hierarchical referral network of sign-ups and sub-partners. In practical terms: publisher "A" signs up to the program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A" attracts other publishers ("B", "C", etc.) to sign up for the same program using her sign-up code all future activities by the joining publishers "B" and "C" will result in additional, lower commission for publisher "A".
Snowballing, this system rewards a chain of hierarchical publishers who may or may not know of each others' existence, yet generate income for the higher level signup. This sort of structure has been successfully implemented by a company called Quixtar.com, a division of Alticor, the parent company of Amway. Quixtar has implemented a network marketing structure to implement its marketing program for major corporations such as Barnes & Noble, Office Depot, Sony Music and hundreds more.
This is not considered affiliate marketing. Two-tier programs exist in the minority of affiliate programs; most are simply one-tier. Programs beyond 2-tier are not considered affiliate programs, but rather multi-level marketing (MLM) or network marketing.
Even though Quixtar compensation plan is network marketing & wouldn't be considered 'affiliate marketing', the big company partners are considered and call themselves affiliates. Therefore, you may argue that the Quixtar company is the affiliate marketer for its partner corporation.

Multi tier programs (and affiliate marketing is not ...)

A brief history of affiliate marketing
Affiliate marketing has grown quickly since its inception. The e-commerce website, viewed as a marketing toy in the early days of the web, became an integrated part of the overall business plan and in some cases grew to a bigger business than the existing offline business. According to one report, total sales generated through affiliate networks in 2006 was £2.16 billion in the UK alone. The estimates were £1.35 billion in sales in 2005. Of course, this is constantly subject to change.

Historic development of affiliate marketing

Affiliate marketing from the advertiser perspective
Merchants like affiliate marketing, because in most cases, it is a "pay for performance model", meaning the merchant does not incur a marketing expense unless results are realized, excluding the initial setup and development of the program. Some businesses owe much of their growth and success to this marketing technique, one example being Amazon.com, especially small and midsize businesses. However, unlike display advertising, affiliate marketing is not easily scalable.

Affiliate marketing pros and cons
Some merchants run their own affiliate programs (In House) while others use third party services provided by intermediaries to track traffic or sales that are referred from affiliates. (see outsourced program management) Merchants can choose from two different types of affiliate management solutions, standalone software or hosted services typically called affiliate networks.

Affiliate program implementation options

Main article: Affiliate manager Affiliate management and program management outsourcing
Affiliate sites are often categorized by merchants (advertisers) and affiliate networks. The main categories are:

Search affiliates that utilize Pay per click search engines to promote the advertisers offers (search arbitrage)
Comparison shopping sites and directories
Loyalty sites, typically characterized by providing a reward system for purchases via points back, cash back or charitable donations
Coupon and rebate sites that focus on Sales promotions
Content and niche sites, including product review sites
Personal websites (these type of sites were the reason for the birth of affiliate marketing, but are today almost reduced to complete irrelevance compared to the other types of affiliate sites)
Blogs and RSS Feeds
Email list affiliates (owners of large opt-in email list)
Registration Path affiliates that include offers from other companies during a registration process on their own website.
Shopping directories that list merchants by categories without providing coupons, price comparison and other features based on information that frequently change and require ongoing updates.
CPA networks are top tier affiliates that expose offers from advertiser they are affiliated with to their own network of affiliates (not to confuse with 2nd tier) Types of publisher (affiliate) websites
Affiliate networks that have already a number of advertisers usually also have a large number of publishers already. This large pool of affiliates could be recruited or they might even apply to the program by themselves.
Relevant sites that attract the same audiences as the advertiser is trying to attract, but are not competing with the advertiser are potential affiliate partners as well. Even vendors or the existing customers could be recruited as affiliate, if it makes sense and is not violating any legal restrictions or regulations.

Finding affiliate partners (advertisers)
Affiliate programs directories are one way to find affiliate programs, another one are large affiliate networks that provide the platform for dozens or even hundreds of advertisers.

Finding affiliate programs (publishers)
In the early days of affiliate marketing, there was very little control over what affiliates were doing, which was abused by a large number of affiliates. Affiliates used false advertisements, forced clicks to get tracking cookies set on users' computers, and adware, which displays ads on computers. Many affiliate programs were poorly managed.

Past and current affiliate marketing issues
In its early days many internet users held negative opinions of affiliate marketing due to the tendency of affiliates to use spam to promote the programs in which they were enrolled. As affiliate marketing has matured many affiliate merchants have refined their terms and conditions to prohibit affiliates from spamming.

Email spam
There used to be much debate around the affiliate practice of spamdexing and many affiliates have converted from sending email spam to creating large volumes of autogenerated webpages, many-a-times, using product data-feeds provided by merchants. Each devoted to different niche keywords as a way of SEOing their sites with the search engines. This is sometimes referred to as spamming the search engine results. Spam is the biggest threat to organic search engines whose goal is to provide quality search results for keywords or phrases entered by their users. Google's algorithm update dubbed "BigDaddy" in February 2006 which was the final stage of Google's major update dubbed "Jagger" which started mid-summer 2005 specifically targeted this kind of spam with great success and enabled Google to remove a large amount of mostly computer generated duplicate content from its index.
Sites made up mostly of affiliate links are usually badly regarded as they do not offer quality content. In 2005 there were active changes made by Google whereby certain websites were labeled as "thin affiliates" and were either removed from the index, or taken from the first 2 pages of the results and moved deeper within the index. In order to avoid this categorization, webmasters who are affiliate marketers must create real value within their websites that distinguishes their work from the work of spammers or banner farms with nothing but links leading to the merchant sites.
Affiliate links work best in the context of the information contained within the website. For instance, if a website is about "How to publish a website", within the content an affiliate link leading to a merchant's ISP site would be appropriate. If a website is about sports, then an affiliate link leading to a sporting goods site might work well within the content of the articles and information about sports. The idea is to publish quality information within the site, and to link "in context" to related merchant's sites.

Search engine spam / spamdexing
Adware is still an issue today, but affiliate marketers have taken steps to fight it. AdWare is not the same as spyware although both often use the same methods and technologies. Merchants usually had no clue what adware was, what it did and how it was damaging their brand. Affiliate marketers became aware of the issue much more quickly, especially because they noticed that adware often overwrites their tracking cookie and results in a decline of commissions. Affiliates who do not use adware became enraged by adware, which they felt was stealing hard earned commission from them. Adware usually has no valuable purpose or provides any useful content to the often unaware user that has the adware running on his computer. Affiliates discussed the issues in various affiliate forums and started to get organized. It became obvious that the best way to cut off adware was by discouraging merchants from advertising via adware. Merchants that did not care or even supported adware were made public by affiliates, which damaged the merchants' reputations and also hurt the merchants' general affiliate marketing efforts. Many affiliates simply "canned" the merchant or switched to a competitor's affiliate program. Eventually, affiliate networks were also forced by merchants and affiliates to take a stand and ban certain adware publishers from their network.
Resulting from this were the Code of Conduct by Commission Junction/BeFree and Performics,

Adware
Affiliates were among the earliest adopters of pay-per-click advertising when the first PPC search engines like Goto.com (which became later Overture.com, acquired by Yahoo! in 2003) emerged during the end of the nineteen-nineties. Later in 2000 Google launched their PPC service AdWords which is responsible for the wide spread use and acceptance of PPC as an advertising channel. More and more merchants engaged in PPC advertising, either directly or via a search marketing agency and realized that this space was already well occupied by their affiliates. Although this fact alone did create channel conflicts and hot debate between advertisers and affiliates, was the biggest issue the bidding on advertisers names, brands and trademarks by some affiliates. A larger number of advertisers started to adjust their affiliate program terms to prohibit their affiliates from bidding on those type of keywords. Some advertisers however did and still do embrace this behavior of their affiliates and allow them, even encourage them, to bid an any term they like, including the advertisers trademarks.

Trademark bidding / PPC
Affiliate marketing is driven by entrepreneurs who are working at the forefront of internet marketing. Affiliates are the first to take advantage of new emerging trends and technologies where established advertisers do not dare to be active. Affiliates take risks and "trial and error" is probably the best way to describe how affiliate marketers are operating. This is also one of the reasons why most affiliates fail and give up before they "make it" and become "super affiliates" who generate $10,000 and more in commission (not sales) per month. This "frontier" life and the attitude that can be found in such type of communities is probably the main reason, why the affiliate marketing industry is not able to this day to self-regulate itself beyond individual contracts between advertiser and affiliate. The 10+ years history since the beginning of affiliate marketing is full of failed attempts of such a success was the halt of the "CJ LMI" ("Commission Junction Link Management Initiative") in June/July 2006, when a single network tried to impose on their publishers/affiliates the use of Javascript tracking code as a replacement for common HTML links.

Lack of self regulation

Lack of industry standards
There are no industry standards for training and certification in affiliate marketing.

Training and certification

Main article: Code of Conduct (affiliate marketing) Code of Conduct
Affiliate marketers usually avoid this topic as much as possible, but when it is being discussed, then are the debates explosive and heated to say the least. The discussion is about CPA networks (CPA = Cost per action) and their impact on "classic" affiliate marketing. Traditional affiliate marketing is resources intensive and requires a lot of maintenance. Most of this includes the management, monitoring and support of affiliates. Affiliate marketing is supposed to be about long-term and mutual beneficial partnerships between advertisers and affiliates. CPA networks on the other hand eliminate the need for the advertiser to build and maintain relationships to affiliates, because that task is performed by the CPA network for the advertiser. The advertiser simply puts an offer out, which is in almost every case a CPA based offer, and the CPA networks take care of the rest by mobilizing their affiliates to promote that offer. CPS or revenue share offers are rarely be found at CPA networks, which is the main compensation model of classic affiliate marketing.

CPA networks "threat"
Voices in the industry are getting louder

The name "affiliate marketing"
The rise of blogging, interactive online communities and other new technologies, web sites and services based on the concepts that are now called Web 2.0 have impacted the affiliate marketing world as well. The new media allowed merchants to get closer to their affiliates and improved communication between each other. New developments have made it harder for unscrupulous affiliates to make money. Emerging black sheep are detected and made known to the affiliate marketing community with much greater speed and efficiency.

Affiliate services

Broad: Internet marketing or online marketing / online advertising
Advertising methods: web banner, Ad filtering, ad serving,central ad server, pop-up ad, contextual advertising
E-Mail advertising: e-mail spam, E-mail marketing, spamming
Marketing tactics: Guerilla marketing, marketing strategy and guerrilla marketing warfare strategies, Evangelism marketing or Word of mouth marketing
Search engines: Search engine marketing (SEM), Search engine optimization (SEO), Pay per click Advertising (click fraud), Paid inclusion
Industry calculations: Click through rate (CTR), cost per action (CPA), effective cost per action (eCPA), cost per click (CPC), cost per impression (CPI), cost per mil (CPM), effective cost per mil (eCPM)
Compensation/Pricing: Compensation methods, Category:Compensation, Category:Pricing
Regulation: Code of Conduct (affiliate marketing)
Terminology: Industry specific abbreviations