What is Affiliate Marketing?

There is several variations of affiliate marketing. I describe them by using some concrete examples. In all forms, the basic premise is that you are generating either "sales" or "leads" to your affiliates.

Affiliate Ads

The first variation is that you have a good website and got decent traffic. So you want you make some money from this traffic. You join say Amazon's affiliate program and become an "Amazon Affiliate" (well, Amazon use the term "Associates" rather than "Affiliate"). So you become an Amazon Associate with a login and password where you can log into Associate Central where you can go through some wizard that will generate some ad code. When you copy and paste those ad codes on your website, it will display ads of Amazon products. If an visitor to your site clicks on that ad and subsequently buys a product on Amazon, you get a commission (or a percentage of that sale) -- certain restrictions apply of course (you have to read the fine print of the Associate agreement).

There are many online retailers that have affiliate programs like Amazon. And there is affiliate networks such as Commission Junction manages that affiliate payout of many affiliates. So you can join Commission Junction and then promote products of the various retailers who have partnered with Commission Junction to manage their affiliate program.

Lead Generation

You write ads and pay to distribute those ads in search engines. The ads take visitor to a "landing site" that you have created which then introduces your visitor to your affiliates' products. Instead of paying you when visitor purchase a product, some affiliate program pay you when you get visitor to fill out a form for more information. This is known as "lead generation".

Affiliate Arbitrage

In Affiliate Arbitrage, you cut out the website and have ads go directly to the merchant site. You write ads and pay say a search engine to distribute those ads so that people see your ads on the right hand side of the search results. These ads drive traffic to the products that of the retailers for whom you have signed up with their affiliate program. You have to read the affiliate agreements carefully to see whether the affiliate merchant allow such practice or not -- because many do not. There may also be a limit as to the number of ads going to the same domain that a search engine might display.

This is known as "affiliate arbitrage" because you have to balance the cost you pay for search engines to put up your ads versus the commission that you would get if the ad works. This is also known as "Direct-to-merchant PPC" where PPC stands for "Pay Per Click" advertisment. Read Mark Welch article about Affiliate Arbitrage especially the section near that bottom titled "Can I Make Money From Affiliate Arbitrage"? Welch's answer to that question is also corroborated by the article Why Most Affiliate Marketing Arbitrage Fail?"

More Information

Make Your Mark with Affiliate Marketing - by sitepoint.