While this question may seem trivial, the answer to it is anything but straightforward. There are dozens of sites out there discussing what it takes to make money in the affiliate business but few have attempted at a good answer as to what the affiliate program actually is. Understanding this definition is going to help you make this program work for you.
An Internet Affiliate Program is essentially a contract between two entities:
1. Merchant
A Merchant is any site that is able to derive some financial benefit from visitors (aka Internet traffic) consuming its products or services. This could be anyone from a large eCommerce conglomerate such as Amazon.com to a small site selling a single software product.
Are you a Merchant with an Affiliate Program? Please leave comment and I will see if I can highlight you in my follow-on post.
2. Publisher
A publisher is any site that has particular content (subject matter that the site is about) and an existing set of consumers who already visit the site regularly and interact with it for business or personal reasons. These sites could be large portals such as Earthlink.net to smaller blog sites covering a particular topic that readers find interesting.
Are you a Publisher successful with one or more Affiliate Programs? Please leave a comment with your experience and I will see if I can highlight you in my follow-on post.
The Affiliate Program Contract
The contract between the Merchant and the Publisher involves a promise that the Merchant will pay the Publisher some amount of money when the Publisher refers some qualified users to the Merchant site. Typically, a Merchant will pay the Publisher a percentage of revenues collected from the customers that the Merchant referred (aka Revenue-Share basis). Amazon.com, Buy.com, Vonage.com are all examples of such programs.
However, a Merchant may also pay the Publisher on leads that do not necessarily convert into sales. Some merchants will allow a Publisher to sign up a lead and pass it off to the Merchant while most will require that such sign-ups take place on the Merchant site. Other Merchants pay Publishers on a per-click or on a per-impression basis. Google AdSense is the premier program paying Publishers on a pay-per-click model. Lastly, some Merchants even pay Publishers for finding other Publishers that join the Merchant’s affiliate program (aka 2nd-tier affiliate pay-out).
Each action that causes a Merchant to pay a Publisher is called a Monetizable Event.
An overwhelming majority of the Merchants pay Publishers on the revenue-share basis. This offers Merchants a low-risk proposition: they will only pay a Publisher once they themselves make money on the lead that the Publisher has brought to the Merchant site. Revenue-share basis puts the most pressure on the Publisher to figure out how to best promote the Merchant’s offer that would generate maximum sales. Publishers, of course, would prefer to receive payment based on a non-financial transaction (such as a simple click or impression), which would theoretically lead to more frequent Monetizable events for which the Publisher would get paid.
In order to ensure that each Publisher gets paid correctly based on the right set of Monetizable events, Merchants implement sophisticated tracking systems that are able to recognize when a Monetizable event has occurred and which Publisher has caused this event to happen. Merchants with significant resources, such as Amazon.com, have implemented their own tracking systems while most other Merchants are taking advantage of affiliate aggregators such as Commission Junction or LinkShare.
By now, you already know whether your site more closely identified with the Merchant or the Publisher. Keep in mind that a site could be a Merchant and a Publisher at the same time – you may have your own affiliate program while taking advantage of 3rd-party affiliate programs on your own site.
In my follow-on post, I will discuss more details from the vantage point of Merchants and Publishers individually.
Read next post: Affiliate Program : Merchants : Direct Traffic.
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