Businessmodel Affiliate

Affiliate Marketing

The affiliate model of internet commerce utilizes the interconnectivity of the internet in order to provide a mutually beneficial vehicle for advertising and with it, a “bread and butter” income stream for developing and established sites alike. Affiliate marketing creates an opportunity for organisations to expose their goods and services to a much wider audience by paying the authors of industry-relevant sites to display their advertisements on their pages. As an advertiser, a location is provided on your site’s pages for the publisher to present advertisements to your sites visitors. When the advertisement is clicked on by a visitor, you are paid commission based on the affiliation model that has been agreed on between you and the advertiser (Rowse, 2009). E-bay, one of the largest auction sites currently on the internet, has been utilizing this method of marketing to increase awareness and expand their business. The three main forms of financial incentive provided by the affiliation model are pay-per-click, banner exchange and revenue sharing techniques (Rappa, 2010).

Pay-Per-Click

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The pay-per-click model provides affiliates with the most convenient means of generating advertisement revenue thanks to its simplicity of setup and absence of maintenance. Advertisers are provided with some code to insert into the advertisement space of their site which will automatically generate ads from the publisher based on relevant keywords. Each time a viewer clicks on the ad and gets redirected to their site, the advertiser is paid a set fee by the publisher (Rappa, 2010).
Pay-per-click affiliations function in one of two ways. The most popular method is a three party system. The organisations wishing to advertise and gain revenue and those wishing to promote their site to a wider audience both deal with a second party “middle-man” who mediates and determines which organisations would best match the promoters goods and services. Anyone wanting to promote will pay the second party based on certain keywords which they want preference to. After that, the second party will scan through all of the advertisers in their database and place the ad on rotation in any site that contains those keywords (Voon Kiong, 2008). Being that the traffic is monitored and advertisements are distributed by the second party, payments are also managed by them. This means there is no direct communication between the advertiser and the promoter and therefore less control over both what the advertiser is displaying and where the promoter is having his ad placed.
The other method used is a more direct means in which the advertiser and promoter will make an agreement directly and the promoter pays the advertiser directly based on the number of click-throughs they receive from the advertiser’s site. This gives the promoter and advertiser a much better control over content than the previous method. However, it also leaves all management in the hands of the promoter which reduces the variety of ads and along with it, the chance of clicks for the advertiser (Work From Home Australia, 2011).

Banner Exchange

Banner exchange provides an easy way for website owners to increase their sites exposure across the web by sharing banner space with other affiliated sites. This works in conjunction with a second party who records banner view counts and distributes the various banners of different sites according to view credits. Sites generate view credits by having their site visited. When they reach an agreed number of credits, their banner will appear on the affiliated sites listed with the second party (Pliner Solutions Incorporated, 2012).
While the banner exchange system provides sites with increased traffic, it is much less popular than pay-per-click systems due to the absence of any revenue generation from the activity. It is purely for increasing exposure of the site to a wider audience. This makes it unappealing in comparison to pay-per-click to individuals who are hosting purely informative sites such as blogs or wikis which do not independently generate profit. However it still has appeal for any sites which are independently generating revenue through sales of products or services and are purely in need of extra exposure.

Revenue Sharing

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Revenue sharing offers commissions to advertisers based on one of two methodologies. The original definition for revenue sharing referred to giving a commission based directly on sales made to anyone who was forwarded through to their site by the advertiser (Rappa, 2010). With this system, promoters and advertisers are directly connected both for procedural and negotiation purposes. The system required in order for the system to work requires excessive data handling and communication between the advertiser’s site and the promoters to ensure that the user’s activities are recorded for compensation purposes. Additionally, it can be easily circumvented intentionally or unintentionally by the user, depriving the advertiser of their commission.
The more modern definition for revenue sharing refers to the sharing of revenue between a promoter and that promoter’s host company. In many circumstances today, promoters may not necessarily have their own self-contained website, but rather one that is provided and advertised by a larger entity. The user will log in to the site and edit his allocated web space with the tools provided and add content that is relevant to their interests or business. Both E-bay and YouTube are working examples of this type of system. In some situations, the user-created sites can develop staggering levels of popularity and in some situations can be found responsible for drawing noticeable percentages of the total traffic passing through the host company. When this occurs, the host company will offer a form of revenue sharing in order to reward the sites owner and encourage him to both continue drawing traffic to his site, and also stay with the parent company instead of developing his own independent site (E-Bay Partner Network, 2012).

eBay's Approach to Affiliate Marketing

In 2008, E-bay began a revamp of their affiliation model. The new model is heavily based in pay-per-click while adopting some elements from revenue sharing. Most affiliation models are based on either a percentage of sales or a per-lead fee which is based on volume. This rewards advertisers based on both the number of sales they generate, as well as the amount of traffic they generate (Sullivan, 2009). Up until these recent changes, E-bay was running 14 individual affiliate marketing programs which were not based within E-bay. The aim of E-Bay’s restructuring process was to simplify the programs down into a single process and to create more direct and intimate contact with its highest performing affiliates.
The affiliate business model has provided e-commerce with a tool for providing website owners with a means of generating two forms of income. For sites that are not selling any goods but rather offering information, it provides an opportunity for passive income which will scale with the popularity of the site. For sites that are already based on sales of some form, it provides supplementary income in addition to their current business model. The development and maturing of affiliate programs over the years have provided incentive for start-ups and rapid financial development of e-commerce as a whole.

References:
Pliner Solutions Incorporated. (2012). Banner Exchange. Retrieved 07 17, 2012, from http://www.eliteweb.com/copromote/banners.htm
Rappa, M. (2010). Business Models on the Web. Retrieved 07 17, 2012, from http://digitalenterprise.org/models/models.html
Rowse, D. (2009). What is Affiliate Marketing? Retrieved 07 17, 2012, from http://www.problogger.net/archives/2009/07/07/what-is-affiliate-marketing/
Sullivan, L. (2009). EBay Dumps Old Affiliate Model, Adopts Quality-Click Pricing. Retrieved 07 17, 2012, from http://www.mediapost.com/publications/article/111940/ebay-dumps-old-affiliate-model-adopts-quality-cli.html
Varagic, D. (2007). Revenue-Sharing User Generated Content Evolution - YouTube. Retrieved 07 17, 2012, from http://draganvaragic.com/blog/index.php/32/ravenue-sharing-user-generated-content-evolution-youtube
Voon Kiong, L. (2008). Pay Per Click Programs. Retrieved 07 17, 2012, from http://www.vbtutor.net/OnlineBusiness/payperclick.htm
Work From Home Australia. (2011). Understanding the Pay Per Click Business Model for Affiliate Marketing. Retrieved 07 17, 2012, from http://www.work-from-home.com.au/understanding-the-pay-per-click-business-model-for-affiliate-marketing
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