An “affiliate program” is an advertising arrangement between advertisers (merchants) and publishers (affiliates). Each advertiser chooses which publishers to work with; each publisher chooses which advertisers to work with. Each relationship may have unique contract terms, but the general concept is “pay-for-results advertising.”

Publishers (affiliates) choose which advertising to publish (and when and where to publish the ads). The merchant pays the publisher for the advertising based on the number or value of transactions which were influenced by the advertising.  (This “performance-based advertising” arrangement had been used by print and broadcast media outlets for many decades, but the technology underlying the internet makes it much more efficient and reliable.)

Generally, each time a consumer clicks on an internet advertisement, a “tracking cookie” is delivered to their computer (overwriting any earlier tracking cookies from that advertiser); when the consumer completes a transaction, the merchant web site retrieves the “tracking cookie” to determine what source (if any) brought the customer to the merchant’s web site.  (The actual “affiliate technology,” including the use of third-party intermediaries called “affiliate networks,” is discussed in more detail here.)

Example: A consumer visits my blog and reads a book review.  The book review contains an advertising link to Amazon.com. If the consumer clicks on that link, and then purchases something from Amazon.com, then my account will be credited (for Amazon, the advertising payment ranges from 4% to 7% of the transaction amount, excluding shipping).  The actual payment rate or amount varies considerably, with some merchants paying 1% or less, and others paying 25% or more. Some merchants pay a fixed “bounty” per transaction, or per “new customer.”

For advertisers (merchants), “affiliate programs” are especially attractive because the advertiser pays only when sales occur. Sales revenue can be used to pay for the advertising, so there is no need to raise large amounts of money in advance to pay for advertising, nor to ever pay for advertising that wasn’t effective.

For publishers, affiliate programs are attractive because they allow the publisher to choose which ads to display, when, and where. Over time, the publisher can choose which ads perform best on which pages, to maximize revenue for each pageview.

There are many risks and “pitfalls” in affiliate marketing, including the risk that advertisers might fail to pay publishers, as well as the risk that unethical publishers might seek to use technological tricks to “poach” credit for transactions which the publisher never influenced (the consumer never visited the publisher’s web site nor clicked on any of the advertising links authorized by the merchant).

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