Section 4.2. Understanding Affiliate Programs | Google Advertising Tools: Cashing in with Adsense, Adwords, and the Google APIs

4.2. Understanding Affiliate Programs

Affiliate programs go by many names, including: "Affiliate marketing programs," "Virtual Marketing," "Revenue Sharing," "Associate Programs," "Internet Affiliate Marketing," "Direct Marketing," "Performance Marketing," "Partner Marketing," "Pay-For-Performance," and "Referral Programs." The names themselves give you an idea of what is involved. But as Shakespeare put it in Romeo and Juliet:

What's in a name? That which we call a rose by any other name would smell as sweet.

By whatever name it's called, an affiliate earns a commission from a merchant for generating a desired result. The specific result that must occur for the affiliate to earn a commission is (or should be) spelled out, and specified contractually, when the affiliate signs up for the program.

Read the fine print carefully when you sign up for an affiliate program. These agreements can be complicated, but you should be completely clear about exactly what commission you are supposed to get under all the circumstances covered by the agreement.

Most often, the event that leads to a commission for the affiliate is (as I've already stated) a merchant sale resulting from the affiliate's promotion. But this need not be the case. In some circumstances, providing a merchant with a qualified sales lead may be enough to generate a commission for the affiliate.

Joining an affiliate program is potentially lucrative, but requires real attention and care. If not done right, you will not make any money from the affiliate programs you have joined.

Unlike other forms of advertising on your site, you really should care about who your affiliate partners are. This is because you do not get paid unless the affiliate links on your side lead fairly directly to a sale (or other qualifying event).

Understanding affiliate programs can be confusing: there's not a great deal of objective information available about this kind of advertising, affiliate aggregations sites are complex, and affiliate agreements are often full of legalese and opaque. But fear not! After reading this chapter, you'll have a pretty good idea of what affiliate programs are, how they work, and how you can craft an affiliate strategy that can help you make money from your web content.

4.2.1. Mechanics of the Process

There are a number of steps involved in the affiliate marketing process. Here's an overview:

A publisher (an owner of a content-based web site or sites) signs up as a web affiliate of a merchant, either using an affiliate aggregatora company in the business of servicing affiliates for multiple merchants (See "Affiliate Aggregators" later in this chapter)or directly with the merchant (for example, Amazon.com). This signup is done using a web interface, although certain documents (such as a W9 tax form) may need to be filed with the merchant or affiliate aggregator by mail or fax.
You'll need a social security number or an employee tax identification number (EIN) to sign up with most affiliate programs based in the United States.
The merchant approves the publisher. Depending on the goals and methods of the merchant, this step may happen automatically or semiautomatically, or it may involve a manual determination of the suitability of the publisher by the merchant. Marketing goals and guidelines vary; a premium-brand merchant may want to take care that an affiliate is not perceived as déclassé and therefore manually approve all affiliates. Other brands may feel the more inbound links, the better, and let anyone sign up as an affiliate who wants to.
Once the publisher has been approved, the publisher is provided with a tracking ID to use in affiliate ads.
Affiliate aggregators use one tracking ID per publisher, even when the publisher has signed up with multiple merchants.
The merchant supplies banner and linkscollectively called creatives (See "Creatives" below)that use the publisher's tracking ID. The merchant also supplies information about how to create links with the proper tracking ID to the publisher. If the merchant-publisher connection is taking place with the facilitation of an affiliate aggregator, then the aggregator makes it easy for publishers to obtain links. Banners and links are supplied as HTML code, usually complete with the publisher's tracking ID embedded in the link, so you don't need to know much HTML to join an affiliate program. Graphics, most often hosted on the merchant's site, are supplied by the merchant or affiliate aggregator.
The publisher incorporates the supplied HTML in web pages, and/or constructs links based on the tracking ID, that mesh well with the publisher's content.
Visitors to the publisher's site click the banners or links that open the merchant's site; these links contain the tracking ID of the publisher.
Most often, the merchant's site places a cookie on the visitor's computer so that the publisher is credited for actions that take place at a later point by the visitor (often up to 30 days).
If the visitor takes a desired actionusually by buying somethingthe publisher is due a commission (often, as specified in the original agreement, there's a time delay before any actual money is paid in order to handle issues like merchandise returns). Reputable affiliate programs provide an easy mechanism for publishers to keep track of page and click statistics and what they are owed. The tracking software is managed either by the merchant or by a third-party affiliate aggregator.

Figure 4-1 shows how the affiliate marketing process works, assuming that the publisher has already been approved by the merchant and that a third-party aggregator actually tracks sales and commissions .

Figure 4-1. Visitors link through the publisher's site to purchase from the merchant; a third-party aggregator tracks sales and commissions

4.2.2. Creatives

Banners, buttons, and links provided by a merchant to an affiliate publisher are generally called creatives , a term deriving from the ad agency business. (Yes, I suppose it takes some creativity to make a good banner!) Creatives vary from fancy, splashy graphics made using Flash to simple text links pointing at a single product.

There's a great variety in the kinds and sizes of creatives made available by merchants. To generalize, the most common kinds of creatives are:

Text links: Simple hypertext links.
Banners: Graphic images, usually laid out horizontally. Sizes vary, but 480 x 90 pixels or 600 x 90 pixels are typical.
Skyscrapers: Graphic images, intended for vertical deployment (hence the nickname skyscraper). Typical dimensions are 120 x 600 pixels.
Buttons: Small graphical images, typically 120 x 90 pixels.
Search boxes: Search boxes combine graphics, HTML, and text to allow your site visitors to search the merchant's site.

Figure 4-2 shows some of the different creatives that are available to affiliates of the photo stock service Corbis.

Figure 4-2. Merchants with good affiliate programs provide a wide choice in creatives, like this selection shown here from Corbis

The best creative to use depends upon context and individual taste and what you think will work with visitors to your site. It's worth spending some time experimenting with different creatives to see if one performs better than another.

There's a tendency on the part of people running affiliate marketing campaigns to produce what arein my opiniongarish creatives: banners and buttons full of movement and special effects. It's obvious why merchants do thisto get attentionand it is mostly no skin off their nose if an affiliate web site looks a little tasteless. But as a content publisher, you should probably avoid these kinds of creatives. Banners that don't flash most likely work better and won't overwhelm your site content.

All creatives used in affiliate marketing provide a mechanism for including the tracking ID of the publisher, so the publisher can be credited for sales or other action events.

Affiliate marketing works best when the merchant has high appeal to the demographics visiting a publisher's site (See "Matching affiliates with content," later in this chapter). In fact, some of the most effective affiliate links are simple text links to products that your content discusses or recommends. For example, a digital photography web site might well want to provide a link to a merchant partner selling a specific Nikon digital camera.

Providing links to a specific product for sale by a merchant partner in the context of a web site discussion of the product raises ethical concerns about the separation of editorial and advertising content. Most affiliates do it. You'll have to resolve this for yourself, but I would suggest that you not include positive content about a product unless you believe your content, and that you not direct your site vendors to a merchant unless you would buy that product from that merchant yourself.

If you decide to use text links to product items, such as a Nikon D70 digital camera, eventually you'll probably need to understand where the merchant's tracking ID goes in the HTML used for a specific product link, as well as how to link to a specific product within a merchant's catalogue.

For example, here's the code that Amazon.com provides as a text link to the Nikon D70 on Amazon.com (for more about Amazon and working with its creatives and links, See "The Amazon.com Associate Program," later in this chapter).

     <a href="http://www.amazon.com/exec/obidos/redirect?link_code=ur2     &camp=1789&tag=XXXXXXXXX &creative=9325&path=tg/detail/-/B0001LGDAO/">     Nikon D70</a>     <img src="/books/2/226/1/html/2/http://www.assoc-amazon.com/e/ir?t=XXXXXXXXX&l=ur2&o=1" width="1"     height="1" border="0" alt="" style="border:none !important;     margin:0px !important;" />

The actual publisher tracking ID, which Amazon.com passes as the value of the tag variable, has been changed in this example to XXXXXXXXX. The 1-pixel by 1-pixel transparent image file (which cannot be seen by the site visitor) is added so that Amazon.com can add its own cookies to the visitor's computer before the link is clicked, and is not necessary for you to receive credit for the sale as an affiliate.

The actual link that the Amazon.com code creates looks just like a normal text link, as you can see in Figure 4-3.

Figure 4-3. These apparently normal links are actually creatives that embed an affiliate marketing tracking ID and point to a specific product on the site of the merchant (Amazon.com in this example)

In the Nikon D70 example, the product is designated using its ASIN identification number, which is B0001LGDAO. As you can see, if you know a product's ASINwhich is easily available on the Amazon.com product pagesor, for books, the ISBN, you can easily construct your own affiliate links by hand.

An interesting point is that you should understand where the graphic (usually a JPEG or GIF file) used in banner and button creatives is located. Amazon, as well as many other major affiliate merchants, hosts these graphics itself. Other programs ask you to copy graphics to your own web server. It's less trouble when the graphic is on the merchant's site, and it uses less of your own bandwidth, but if the merchant's server goes down, then your site looks (and is) broken . This happens more often than you might expect. True, if the merchant is not serving creatives, it is probably also not selling product, but if a graphic is missing from your site, it looks worse for you then if a link simply doesn't work.

4.2.3. Areas of Concern

The relationship between a content web site and an affiliate advertiser is essentially like that of a commission-only sales rep to a manufacturer. You'll want to examine the same areas that a brick-and-mortar independent sales rep would look at before agreeing to carry a merchant's products. Start by asking these questions:

Does the merchant have a good reputation?
Will the merchant honor its commitments?
Will your customers want to buy the product?
Will the merchant stay in business?

More specific to the Web, as I've mentioned in the context of hosting creatives, if a merchant's site goes down, then your links will be broken, and you won't be able to earn a commission. So you should feel reasonably good about the web site stability of a merchant whose affiliate program you join.

As a Web "sales rep," you should also be concerned with (and investigate as thoroughly as possible) these issues:

The amount of commission you will earn per event
The adequacy of the processes for tracking your sales, crediting you, and paying you
The commitment of the affiliate advertiser to support its affiliate program
The appeal of the offerings of the affiliate advertiser in relationship to the visitors to your site

Each of these points is worth some more discussion.

4.2.3.1. Amount of the commission

You can (and should) find out the amount of the sales commission when you sign up for an affiliate program. There's a huge variety of commission structures, but you should probably expect a commission of between 3% and 10% of what the merchant receives, exclusive of shipping, handling, and sales tax.

The Amazon.com commission structure tends to be at the lower end of this range; however, note that on nonbook items Amazon.com is often acting as a go-between, rather than directly selling actual merchandise.

You should take care to note precisely what action items trigger a sales commission. Most of the time, it is a sale. However, some sales may be excluded. In addition, some sites may pay commissions for qualified leadsfor example, someone signing up for a home mortgage and completing the paperworkwhether or not the product actually sells (with the mortgage example, refinancing wouldn't have to be completed for you to make your commission).

Be on the lookout for commission structures that reward you for good performance. These kinds of programs can add bonus percentages to the commissions you make and can be quite rewarding if you deliver substantial traffic.

In addition, some affiliate programs simply offer flat fees as incentives. For example, a web hosting affiliate program might pay affiliates $90 each time a visitor to the affiliate site signs up for a web hosting contract of a year or more.

$90 is, in fact, roughly the current going sales commission for an affiliate who sends a site visitor who signs up for a web hosting contract.

Also note that, depending upon the program, commission payout usually does not take place right away. Most affiliate programs build some time in for product returns (or buyer's remorse). Once it is clear that there will not be any returns, it can still be 30 to 90 days before you are paid.

4.2.3.2. Sales and commission tracking

Sales and commission tracking is a serious issue. It's very important to most affiliate site publishers. If you don't know that transactions originating from your site are being consistently tracked, then you have no way to be assured that you will be paid the commissions you are owed.

This implies that you should be careful to work only with third-party affiliate aggregators (See "Affiliate Aggregators," later in this chapter) or enroll in programs managed by an extremely reliable vendor, such as Amazon.com (See "The Amazon.com Associate Program," later in this chapter).

You should test that each affiliate link on your site works by buying something and making sure that your sales commission shows up when you check the tracking software. You'd be amazed the number of times a problem with the linkage or the accounting is revealed by doing this!

4.2.3.3. Merchant support of affiliate programs

Will the merchant support your efforts with good promotions, incentives, and creatives? Ideally, an affiliate relationship is a long-term partnership. You'd like to know that the merchant supporting the affiliate program is in it for the long haul. Merchant support of affiliate programs makes a big difference in the following areas:

To make an affiliate program work well, you'll want to be able to provide value to your site visitors in terms of special promotions.
If you put great effort into an affiliate program and perform well, you should be rewarded with incentives.
To keep your site visitors coming back to an affiliated merchant, you need a steady stream of quality, fresh creatives.

4.2.3.4. Matching affiliates with content

Perhaps the single biggest factor in successful affiliate marketing is the alignment of the content of your site with the affiliate merchant's offerings. In other words, visitors to your site should be genuinely interested in the products the merchant has to sell.

You'll have a tough row to hoe if you try to sell cosmetics to visitors to a digital photography site, but should find it easier to sell these visitors digital photo equipment and processing services. Visitors to a site that provides technical services of use to webmasters are likely candidates for web hosting affiliate programs, but unlikely to buy lingerie or refrigerators.

In the brick-and-mortar world, there used to be talk about a salesperson who could "sell ice to the Inuit." No web site can sell as well as this proverbial salesperson, so you need to use common sense and devise an intelligent strategy to provide affiliate links to products and services that are relevant to your site visitors. Relevant links get clicked, goods get purchased, and publishers get their commissions. More than any other form of web site advertising monetization, affiliate marketing requires careful honing of site content with an intelligent choice of partners and creatives.