Affiliate Marketing in a Nutshell

Affiliate marketing is a form of performance based advertising. Whereas with a traditional advertising buy - let's say it's in a magazine - an advertiser pays an up front fee to place their message and gambles that they will make money, with performance-based advertising the advertiser pays no up-front cost for the placement. Rather, they pay a fee every time a specific action - purchasing a product, signing-up for a service - is taken. Affiliate marketing connects content publishers and merchants working in relevant market niches, often through an affiliate network.

What is an 'Affiliate'?

An 'affiliate' is just a fancy name for anyone who publishes content. Affiliates can have many types of platforms - a social networking site, a blog, an e-mail newsletter - anything really. The affiliate creates compelling content to drive traffic to their site. They embed relevant advertisements in their site, either directly in the content or adjacent to it. If the affiliate is compelling, users will click on the offers displayed on their sites. If the user takes the merchant's desired action, the affiliate receives a commission.

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What is a 'merchant'?

A merchant is an advertiser with a product to sell. They develop ad-content and place it on affiliate sites. The affiliates generate content to drive users to the affiliate's site and convince them to click on the merchant's offer. When the user takes the merchant's desired action - purchases a product, applies for a credit card, signs-up for an e-mail newsletter - the merchant pays a commission to the affiliate.

What is 'affiliate network' and why do we need them?

The paradigmatic example of affiliate marketing is Amazon.com. Amazon developed a program in the late 1990s where content publishers can sign-up for an 'affiliate account'. A publisher, let's say a blog about mortgage lending, reviews a book called Learning the Basics of Mortgage Lending and includes a link to purchase it. If the user clicks the link and buys the book, the affiliate receives a commission equal to a percentage of the purchase.

This model works well for an industry giant, but most merchants don't want to (or can't) invest in the internal capacity to place affiliate ads in this manner - it just isn't cost effective. Enter the affiliate network. Affiliate networks connect content publishers with merchants. A merchant develops a campaign and gives it to the network. The affiliate network gives its affiliates the opportunity to place the offer on their site if they feel it will perform well there. The affiliate network takes care of all the grunt work from serving ads to making payments to affiliates. This way the exciting opportunities afforded by affiliate marketing are open to a much larger group of merchants and publishers.

Of course there are endless refinements, skills, and trick-of-the-trade to be explored, but that's affiliate marketing in a nutshell.

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