What is Affiliate Marketing?

What is Affiliate Marketing?

Affiliate marketing is a revenue-sharing venture between a website owner and an online merchant. The website owner places advertisements on the site to either help sell the merchant's products or to send potential customers to the merchant's website. This is done in exchange for a share of the profits. There are three ways to earn money through affiliate marketing. They are called pay per click, pay per sale and pay per lead.

Types of Affiliate Marketing

In pay per click marketing, every time a potential customer leaves the affiliate website by clicking on the link leading to the merchant's website, a certain amount of money is earned by the affiliate. This amount can vary depending on the product or service that is advertised and the agreed-upon commission. The money might be electronically transferred immediately to the affiliate; the money might be transferred at regularly scheduled times of the day, week or month; or a check might be mailed to the affiliate at regular intervals.

Pay per sale advertising allows the affiliate to earn money every time a sale is made as a result of advertising on the affiliate's website. The affiliate might earn a percentage, or commission, based on the amount of the sale or might earn a flat rate, depending on the agreement.

In pay per lead advertising, every time a potential client registers at the merchant's website as a result of the advertisement on the affiliate's account, a previously determined amount of money is earned by the affiliate.

How did Affiliate Marketing Started?

The concept of affiliate marketing on the Internet was conceived of, put into practice and patented by William J. Tobin, the founder of PC Flowers & Gifts. Launched on the Prodigy Network in 1989, PC Flowers & Gifts remained on the service until 1996. By 1993, PC Flowers & Gifts generated sales in excess of $6 million per year on the Prodigy service. In 1998, PC Flowers and Gifts developed the business model of paying a commission on sales to The Prodigy network (Reference-Chicago Tribune-Oct, 4, 1995).(Ref The Sunsentinal 1991 and www.dankawaski.com).

In 1994, Mr. Tobin launched a beta version of PC Flowers & Gifts on the Internet in cooperation with IBM who owned half of Prodigy (Reference-PC Week Article Jan 9, 1995). By 1995 PC Flowers & Gifts had launched a commercial version of the website and had 2,600 affiliate marketing partners on the World Wide Web. Mr. Tobin applied for a patent on tracking and affiliate marketing on January 22, 1996 and was issued U.S. Patent number 6,141,666 on Oct 31, 2000. Mr. Tobin also received Japanese Patent number 4021941 on Oct 5, 2007 and U.S. Patent number 7,505,913 on Mar 17, 2009 for affiliate marketing and tracking (Reference-Business Wire-Jan, 24, 2000). In July 1998 PC Flowers and Gifts merged with Fingerhut and Federated Department Stores (Reference- Business Wire- March 31, 1999).

On March 9, 2009 Mr. Tobin assigned his patents to the Tobin Family Education and Health Foundation. The Foundation licenses the patents to many of the largest affiliate marketing companies in the US and Japan. Mr. Tobin discusses the P.C Flowers & Gifts service on the Internet as well as the other nine companies he has founded in his book entitled “Confessions of an Obsessive Entrepreneur”.

The concept of revenue sharing—paying commission for referred business—predates affiliate marketing and the Internet. The translation of the revenue share principles to mainstream e-commerce happened in November 1994, almost four years after the origination of the World Wide Web.

Cybererotica was among the early innovators in affiliate marketing with a cost per click program.

During November 1994, CDNOW launched its BuyWeb program. CDNOW had the idea that music-oriented websites could review or list albums on their pages that their visitors may be interested in purchasing.

These websites could also offer a link that would take the visitor directly to CDNOW to purchase the albums. 

The idea for remote purchasing originally arose because of conversations with music label Geffen Records in the fall of 1994. The management at Geffen wanted to sell its artists' CDs directly from its website, but did not want to implement this capability itself. Geffen asked CDNOW if it could design a program where CDNOW would handle the order fulfillment. Geffen realized that CDNOW could link directly from the artist on its website to Geffen's website, bypassing the CDNOW home page and going directly to an artist's music page.

Amazon.com (Amazon) launched its associate program in July 1996: Amazon associates could place banner or text links on their site for individual books, or link directly to the Amazon home page.

When visitors clicked from the associate's website through to Amazon and purchased a book, the associate received a commission. Amazon was not the first merchant to offer an affiliate program, but its program was the first to become widely known and serve as a model for subsequent programs.

In February 2000, Amazon announced that it had been granted a patent on components of an affiliate program. The patent application was submitted in June 1997, which predates most affiliate programs, but not PC Flowers & Gifts.com (October 1994), AutoWeb.com (October 1995), Kbkids.com/BrainPlay.com (January 1996), EPage (April 1996), and several others.