INTERNET MARKETING

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Internet marketing, also referred to as online marketing or Emarketing, is marketing that uses the Internet. The Internet has brought many unique benefits to marketing including low costs in distributing information and media to a global audience. The interactive nature of Internet media, both in terms of instant response, and in eliciting response at all, are both unique qualities of Internet marketing.

Internet marketing ties together creative and technical aspects of the internet, including design, development, advertising and sales. Internet marketing methods include search engine marketing, display advertising, e-mail marketing, affiliate marketing, interactive advertising and viral marketing.
Definition and scopeInternet marketing is the process of growing and promoting an organization using online media. Internet marketing does not simply mean 'building a website' or 'promoting a website'. Somewhere behind that website is a real organization with real goals.

Internet marketing strategy includes all aspects of online advertising products, services, and websites, including search engine marketing, public relations, social media, market research, email marketing, and direct sales. The Internet marketer selects the best of these vehicles, given the organization's goals and audience.
Business modelsInternet marketing is associated with several business models. The model is typically defined by the goal. These include e-commerce, where you sell goods directly to consumers or businesses; publishing, where you sell advertising; and lead-based sites, where an organization generates value by getting sales leads from their site. There are many other models (nearly infinite, actually) based on the specific needs of each person or business that launches an internet marketing campaign.

AdvantagesSome of the benefits associated with Internet marketing include the availability of information. Consumers can access the Internet and learn about products, as well as purchase them, at any hour, any day. Companies that use Internet marketing can also save money because of a reduced need for a sales force. Overall, Internet marketing can help expand from a local market to both national and international market places. Compared to traditional media, such as print, radio and TV, Internet marketing can have a relatively low cost of entry.[citation needed]
Since exposure, response and overall efficiency of Internet media is easy to track, through the use of web analytics for instance, compared to traditional "offline" media, Internet marketing can offer a greater sense of accountability for advertisers.[citation needed] Internet marketing, as of 2007 is growing faster than other types of media. [citation needed]

LimitationsSince Internet marketing requires customers to use newer technologies than traditional media, not all people may get the message. Low speed Internet connections can cause difficulties. If companies build overly large or complicated web pages, Internet users may struggle to download the information on dial up connections or mobile devices.
Internet marketing does not allow shoppers to touch, smell, taste or try-on tangible goods before making an online purchase. Some e-commerce vendors have implemented liberal return policies and in store pick up services to reassure customers.
Security concernsFor both companies and consumers that participate in online business, security concerns are very important. Many consumers are hesitant to buy items over the Internet because they do not trust that their personal information will remain private. Recently, some companies that do business online have been caught giving away or selling information about their customers. Several of these companies have guarantees on their websites, claiming customer information will be private. By selling customer information, these companies are breaking their own, publicized policy. Some companies that buy customer information offer the option for individuals to have their information removed from the database (known as opting out). However, many customers are unaware that their information is being shared and are unable to stop the transfer of their information between companies.
Security concerns are of great importance and online companies have been working hard to create solutions. Encryption is one of the main methods for dealing with privacy and security concerns on the Internet. Encryption is defined as the conversion of data into a form called a cipher. This cipher cannot be easily intercepted unless an individual is authorized by the program or company that completed the encryption. In general, the stronger the cipher, the better protected the data is. However, the stronger the cipher, the more expensive encryption becomes.
Effects on industriesInternet marketing has had a large impact on several industries including music, banking, and flea markets - not to mention the advertising industry itself.

In the music industry, many consumers have begun buying and downloading music files (e.g. MP3s) over the Internet instead of simply buying CDs.
More and more banks are offering the ability to perform banking tasks online. Online banking is believed to appeal to customers because it is more convenient than visiting bank branches. Currently, over 150 million U.S. adults now bank online. Online banking is now the fastest-growing Internet activity. The increasing speed of Internet connections is the main reason for the fast-growth. Of those individuals who use the Internet, 44% now perform banking activities over the Internet.
Internet auctions have gained popularity. Unique items that could previously be found at flea markets are being sold on eBay instead. eBay has also affected the prices in the industry. Buyers and sellers often look at prices on the website before going to flea markets and the eBay price often becomes what the item is sold for. More and more flea market sellers are putting their items up for sale online and running their business out of their homes.
The effect on the ad industry itself has been profound. In just a few years, online advertising has grown to be worth tens of billions of dollars annually.[1][2][3] (2007-06-18) PricewaterhouseCoopers reported US Internet marketing spend totalled $16.9 billion in 2006 [4].
As Advertisers increase and shift more of their budgets online, it is now overtaking radio in terms of market share.[5]
The cost to acquire a customer is lower with internet marketing than with traditional marketing however cost are rising as more companies take traditional budgets and push it to internet marketing avenues. Search engine marketing for example, which is part of internet marketing continues to grow at tremendous rates. Email marketing also grows. Web analytics is a growing aspect of internet marketing, as there is more accountability than in the history of advertising.

Internet auctions

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In the music industry, many consumers have begun buying and downloading music files (e.g. MP3s) over the

Internet instead of simply buying CDs.

More and more banks are offering the ability to perform banking tasks online. Online banking is believed

to appeal to customers because it is more convenient than visiting bank branches. Currently, over 150

million U.S. adults now bank online. Online banking is now the fastest-growing Internet activity. The

increasing speed of Internet connections is the main reason for the fast-growth. Of those individuals

who use the Internet, 44% now perform banking activities over the Internet.

Internet auctions have gained popularity. Unique items that could previously be found at flea markets

are being sold on eBay instead. eBay has also affected the prices in the industry. Buyers and sellers

often look at prices on the website before going to flea markets and the eBay price often becomes what

the item is sold for. More and more flea market sellers are putting their items up for sale online and

running their business out of their homes.

The effect on the ad industry itself has been profound. In just a few years, online advertising has

grown to be worth tens of billions of dollars annually.[1][2][3] (2007-06-18) PricewaterhouseCoopers

reported US Internet marketing spend totalled $16.9 billion in 2006 [4].

As Advertisers increase and shift more of their budgets online, it is now overtaking radio in terms of

market share.[5]

The cost to acquire a customer is lower with internet marketing than with traditional marketing however

cost are rising as more companies take traditional budgets and push it to internet marketing avenues.

Search engine marketing for example, which is part of internet marketing continues to grow at tremendous

rates. Email marketing also grows. Web analytics is a growing aspect of internet marketing, as there is

more accountability than in the history of advertising.

Marketing 2.0

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Marketing 2.0 is a natural outgrowth of Web 2.0 as it refers to the transformation of marketing

resulting from the network effect of the Internet. Marketing 2.0 represents a dramatic shift in

marketing to account for customers researching and buying goods and services independent of advertising

and marketing campaigns and messages. With broadband as the new utility in the household and at work,

customers now make decisions on their own terms, relying - in seconds - on friends, family, colleagues,

and other trusted networks to form opinions.

Where traditional advertising and marketing is based on key messages and support points in an attempt to

force a purchase decisions, Marketing 2.0 is based on authentic, real content used to fuel conversations

and purchase decisions in a manner that allows the customer to draw their own conclusions. Traditional

media may be used in Marketing 2.0 - online and offline - but media is used to talk about content, not

brand or product positioning. "Creative concepts" are left behind in favor of "content concepts."

This shift has dramatic implications for how marketing gets created. For marketing agencies - the

communications consultants to their clients - it means relying on a different process, skills, and set

of deliverables in order to brand, engage, and sell to customers. The process puts content front and

center as the means to engage the market. Required skills now include editorial, documentary, gaming,

and other content-related capabilities rather than copywriting, art direction, and creative direction.

Deliverables now include content and the ability to promote content rather than brand and product

creative concepts. Promoting the content may also include participating in social networks in a fully

disclosed, credible fashion.

For marketing organizations, it means aliging with communications agencies that put content at the

center of what they do or driving similar process, skill set, and deliverable changes with an in-house

service.

With Marketing 2.0, messages don't matter. It's about fueling purchase decisions rather than forcing

them. And the future belongs to crowds.

Examples of Marketing 2.0

Marketing 2.0 is about turning transactions into interactions and interruptions into integrations. Here

are some examples of what that translates into:
Marketing 1.0 Marketing 2.0
commercials product placements
press releases blog posts
direct mail email
push content pull content (RSS)
collateral videos
seminars webinars/podcasts
business generated content user generated content
building websites building communities

Sources

* Marketing in a Web 2.0 World

Cost per impression

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Cost Per Impression is a phrase often used in online advertising and marketing related to web traffic.

It is used for measuring the worth and cost of a specific e-marketing campaign. This technique is

applied with web banners, text links, e-mail spam, and opt-in e-mail advertising, although opt-in e-mail

advertising is more commonly charged on a Cost Per Action (CPA) basis.

The Cost Per Impression is often abbreviated to CPI

This type of advertising arrangement closely resembles Television and Print Advertising Methods for

speculating the cost of an Advertisement. Often, industry agreed approximates are used. With Television

the Nielsen Ratings are used and Print is based on the circulation a publication has.

For Online Advertising, the numbers of views can be a lot more precise. When a user requests a Web Page,

the originating server creates a log entry. Also, a third party tracker can be placed in the web page to

verify how many accesses that page had.

There are other advertising pricing structures. CPC - Cost Per Click Through, CPL - Cost Per Lead (lead

usually meaning a free registration), CPS - Cost Per Sale. These structures are collectively referred to

as CPA - Cost per Action.

CPI and/or Flat rate advertising deals are sometimes preferred by the Publisher/Webmaster because they

will receive a more consistent fee proportional to the amount of traffic.

Today, it is very common for large publishers to charge for most of their advertising inventory on a CPM

or Cost Per Time (CPT) basis.

A related term, eCPM or effective Cost Per Mille, is used to measure the effectiveness of advertising

inventory sold (by the publisher) via a CPC, CPA, or CPT basis.

Cost Per Mille

The acronym CPM comes from the print world (and the Latin word mille), and stands for Cost Per Mille in

the US or Cost Per M in the UK, with M representing the Roman numeral for thousand. When online

advertising started gaining momentum, those in the industry used this term (rather than something like

CPI) as a metric for describing the Cost Per Impression largely because advertisers were already

familiar with the term CPM.

It is important to remember that when someone says something like, "our CPM is $5," this means that the

Cost Per Impression is $0.005

Training and certification

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There are no industry standards for training and certification in affiliate marketing.[29] There are

training courses and seminars that result in certifications. Some of them are also widely accepted,

which is mostly because of the reputation of the person or company who is issuing the certification.

Affiliate marketing is also not a subject taught in universities. Only few college teachers work with

internet marketers to introduce the concept of affiliate marketing to students majoring in marketing for

example.[30]

Education happens mostly in "real life" by just doing it and learning the details as you go. There are a

number of books available, but readers have to watch out, because some of the so-called "how-to" or

"silver bullet" books teach how to manipulate holes in the Google algorithm, which can quickly become

out of date[30] or that advertisers do not permit anymore some of the strategies endorsed in the books.

[31]

OPM companies usually mix formal with informal training, and do a lot of their training through group

collaboration and brainstorming. Companies also try to send each marketing employee to the industry

conference of their choice.[32]

Other resources used include web forums, blogs, podcasts, video seminars and specialty websites that try

to teach individuals to learn affiliate marketing, such as Affiliate Classroom, whose founder Anik

Singal won the first place and $15,000 in the Young Alumni Category of the University of Maryland $50K

Business Plan Competition in 2006.[33]

Affiliate Summit is the largest conference in the industry, and it is not run by any of the Affiliate

networks, many of which run their own annual events.

Code of Conduct

Main article: Code of Conduct (affiliate marketing)

A Code of Conduct was released by the affiliate networks Commission Junction/BeFree and Performics on

December 10 2002. It was created to guide practices and adherence to ethical standards for online

advertising.

"Threat" to traditional affiliate networks

Affiliate marketers usually avoid this topic as much as possible, but when it is being discussed, then

are the debates explosive and heated to say the least.[34][35][36] The discussion is about CPA networks

(CPA = Cost per action) and their impact on "classic" affiliate marketing (traditional affiliate

networks). Traditional affiliate marketing is resources intensive and requires a lot of maintenance.

Most of this includes the management, monitoring and support of affiliates. Affiliate marketing is

supposed to be about long-term and mutual beneficial partnerships between advertisers and affiliates.

CPA networks on the other hand eliminate the need for the advertiser to build and maintain relationships

to affiliates, because that task is performed by the CPA network for the advertiser. The advertiser

simply puts an offer out, which is in almost every case a CPA based offer, and the CPA networks take

care of the rest by mobilizing their affiliates to promote that offer. CPS or revenue share offers are

rarely be found at CPA networks, which is the main compensation model of classic affiliate marketing.

The name "affiliate marketing"

Voices in the industry are getting louder[37] that recommend a renaming of affiliate marketing. The

problem with the term affiliate marketing is that it is often confused with network-marketing or multi-

level marketing. "Performance marketing" is one of the alternative names that is used the most, but

other recommendations were made as well,[38] but who is to decide about the change of a name of a whole

industry. Something like that was attempted years ago for the search engine optimization industry, an

attempt that obviously failed since it is still called SEO today.[39][40]

Adware

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Adware is still an issue today, but affiliate marketers have taken steps to fight it. AdWare is not the

same as spyware although both often use the same methods and technologies. Merchants usually had no clue

what adware was, what it did and how it was damaging their brand. Affiliate marketers became aware of

the issue much more quickly, especially because they noticed that adware often overwrites their tracking

cookie and results in a decline of commissions. Affiliates who do not use adware became enraged by

adware, which they felt was stealing hard earned commission from them. Adware usually has no valuable

purpose or provides any useful content to the often unaware user that has the adware running on his

computer. Affiliates discussed the issues in various affiliate forums and started to get organized. It

became obvious that the best way to cut off adware was by discouraging merchants from advertising via

adware. Merchants that did not care or even supported adware were made public by affiliates, which

damaged the merchants' reputations and also hurt the merchants' general affiliate marketing efforts.

Many affiliates simply "canned" the merchant or switched to a competitor's affiliate program.

Eventually, affiliate networks were also forced by merchants and affiliates to take a stand and ban

certain adware publishers from their network.

Resulting from this were the Code of Conduct by Commission Junction/BeFree and Performics,[23]

LinkShare's Anti-Predatory Advertising Addendum[24] and ShareASale's complete ban of software

applications as medium for affiliates to promote advertiser offers.[25] Regardless of the progress made

is adware still an issue. This is demonstrated by the class action lawsuit against ValueClick and its

daughter company Commission Junction filed on April 20, 2007.[26]

Trademark bidding / PPC

Affiliates were among the earliest adopters of pay-per-click advertising when the first PPC search

engines like Goto.com (which became later Overture.com, acquired by Yahoo! in 2003) emerged during the

end of the nineteen-nineties. Later in 2000 Google launched their PPC service AdWords which is

responsible for the wide spread use and acceptance of PPC as an advertising channel. More and more

merchants engaged in PPC advertising, either directly or via a search marketing agency and realized that

this space was already well occupied by their affiliates. Although this fact alone did create channel

conflicts and hot debate between advertisers and affiliates, was the biggest issue the bidding on

advertisers names, brands and trademarks by some affiliates. A larger number of advertisers started to

adjust their affiliate program terms to prohibit their affiliates from bidding on those type of

keywords. Some advertisers however did and still do embrace this behavior of their affiliates and allow

them, even encourage them, to bid an any term they like, including the advertisers trademarks.

Lack of self regulation

Affiliate marketing is driven by entrepreneurs who are working at the forefront of internet marketing.

Affiliates are the first to take advantage of new emerging trends and technologies where established

advertisers do not dare to be active. Affiliates take risks and "trial and error" is probably the best

way to describe how affiliate marketers are operating. This is also one of the reasons why most

affiliates fail and give up before they "make it" and become "super affiliates" who generate $10,000 and

more in commission (not sales) per month. This "frontier" life and the attitude that can be found in

such type of communities is probably the main reason, why the affiliate marketing industry is not able

to this day to self-regulate itself beyond individual contracts between advertiser and affiliate. The

10+ years history since the beginning of affiliate marketing is full of failed attempts[27] to create an

industry organization or association of some kind that could be the initiator of regulations, standards

and guidelines for the industry. Some of the failed examples are the Affiliate Union and iAfma.

The only places where the different people from the industry, affiliates/publishers,

merchants/advertisers, networks and 3rd party vendors and service providers like outsources program

managers come together at one location are either online forums and industry trade shows. The forums are

free and even small affiliates can have a big voice at places like that, which is supported by the

anonymity that is provided by those platforms. Trade shows are not anonymous, but a large number, in

fact the greater number (quantitative) of affiliates is not able to attend those events for financial

reasons. Only performing affiliates can afford the often hefty price tags for the event passes or get it

sponsored by an advertisers they promote.

Because of the anonymity of forums, the only place where you are to get the majority (quantitative) of

people in the industry together, is it almost impossible to create any form of legally binding rule or

regulation that must be followed by everybody in the industry. Forums had only very few successes in

their role as representant of the majority in the affiliate marketing industry. The last example[28] of

such a success was the halt of the "CJ LMI" ("Commission Junction Link Management Initiative") in

June/July 2006, when a single network tried to impose on their publishers/affiliates the use of

Javascript tracking code as a replacement for common HTML links.

Lack of industry standards

Multi tier programs

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Some advertisers offer multi-tier programs that distribute commission into a hierarchical referral

network of sign-ups and sub-partners. In practical terms: publisher "A" signs up to the program with an

advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A"

attracts other publishers ("B", "C", etc.) to sign up for the same program using her sign-up code all

future activities by the joining publishers "B" and "C" will result in additional, lower commission for

publisher "A".

Snowballing, this system rewards a chain of hierarchical publishers who may or may not know of each

others' existence, yet generate income for the higher level signup. This sort of structure has been

successfully implemented by a company called Quixtar.com, a division of Alticor, the parent company of

Amway. Quixtar has implemented a network marketing structure to implement its marketing program for

major corporations such as Barnes & Noble, Office Depot, Sony Music and hundreds more.

Two-tier programs exist in the minority of affiliate programs; most are simply one-tier. Referral

programs beyond 2-tier are multi-level marketing (MLM) or network marketing.

Even though Quixtar compensation plan is network marketing & wouldn't be considered 'affiliate

marketing', the big company partners are considered and call themselves affiliates. Therefore, you may

argue that the Quixtar company is the affiliate marketer for its partner corporation.

From the advertiser perspective

Pros and cons

Merchants like affiliate marketing,[17] because in most cases, it is a "pay for performance model",

meaning the merchant does not incur a marketing expense unless results are realized, excluding the

initial setup and development of the program. Some businesses owe much of their growth and success to

this marketing technique, one example being Amazon.com, especially small and midsize businesses.

However, unlike display advertising, affiliate marketing is not easily scalable.

Implementation options

Some merchants run their own affiliate programs (In House) while others use third party services

provided by intermediaries to track traffic or sales that are referred from affiliates. (see outsourced

program management) Merchants can choose from two different types of affiliate management solutions,

standalone software or hosted services typically called affiliate networks.

Affiliate management and program management outsourcing

Main article: Affiliate manager

Successful affiliate programs require a lot of maintenance and work. The number of affiliate programs

just a few years back was much smaller than it is today. Having an affiliate program that is successful

is not as easy anymore. The days when programs could generate considerable revenue for the merchant even

if they were poorly or not at all managed ("auto-drive") is over.

Those uncontrolled programs were one of the reasons why some of the not so positive examples of

affiliates were able to do what they did (spamming,[18] trademark infringement, false advertising,

"cookie cutting", typosquatting[19] etc.)

The increase of number of internet businesses in combination with the increased number of people that

trust the current technology enough to do shopping and business online caused and still causes a further

maturing of affiliate marketing. The opportunities to generate considerable amount of profit in

combination with a much more crowded marketplace filled with about equal quality and sized competitors

made it harder for merchants to get noticed, but at the same time the rewards if you get noticed much

larger.

Internet advertising industry became much more professional and online media is in some areas closing

the gap to offline media, where advertising is highly professional and very competitive for a lot of

years already. The requirements to be successful are much higher than they were in the past. Those

requirements are becoming often too much of a burden for the merchant to do it successfully in-house.

More and more merchants are looking for alternative options which they find in relatively new outsourced

(affiliate) program management or OPM companies that were often founded by veteran affiliate managers

and network program managers.[20]

The OPM are doing this highly specialized job of affiliate program management for the merchant as a

service agency very much like Ad agencies are doing the job to promote a brand or product in the offline

world today.

Types of publisher (affiliate) websites
Companies and websites in affiliate marketing
Companies and websites in affiliate marketing

Affiliate sites are often categorized by merchants (advertisers) and affiliate networks. The main

categories are:

* Search affiliates that utilize pay per click search engines to promote the advertisers offers

(search arbitrage)
* Comparison shopping sites and directories
* Loyalty sites, typically characterized by providing a reward system for purchases via points back,

cash back or charitable donations
* Coupon and rebate sites that focus on sales promotions
* Content and niche sites, including product review sites
* Personal websites (these type of sites were the reason for the birth of affiliate marketing, but

are today almost reduced to complete irrelevance compared to the other types of affiliate sites)
* Blogs and RSS feeds
* Email list affiliates (owners of large opt-in email list(s))
* Registration path affiliates that include offers from other companies during a registration

process on their own website.
* Shopping directories that list merchants by categories without providing coupons, price comparison

and other features based on information that frequently change and require ongoing updates.
* CPA networks are top tier affiliates that expose offers from advertiser they are affiliated with

to their own network of affiliates (not to confuse with 2nd tier)

Finding affiliate partners (advertisers)

Affiliate networks that have already a number of advertisers usually also have a large number of

publishers already. This large pool of affiliates could be recruited or they might even apply to the

program by themselves.

Relevant sites that attract the same audiences as the advertiser is trying to attract, but are not

competing with the advertiser are potential affiliate partners as well. Even vendors or the existing

customers could be recruited as affiliate, if it makes sense and is not violating any legal restrictions

or regulations.

Finding affiliate programs (publishers)

Affiliate programs directories are one way to find affiliate programs, another method is large affiliate

networks that provide the platform for dozens or even hundreds of advertisers. The third option is to

check the target website itself for a reference to their affiliate program. Websites, which offer an

affiliate program often, have a link titled "affiliate program", "affiliates", "referral program" or

"webmasters" somewhere on their website, usually in the footer or "About" section of the site.

Past and current issues

In the early days of affiliate marketing, there was very little control over what affiliates were doing,

which was abused by a large number of affiliates. Affiliates used false advertisements, forced clicks to

get tracking cookies set on users' computers, and adware, which displays ads on computers. Many

affiliate programs were poorly managed.

Email spam

In its early days many internet users held negative opinions of affiliate marketing due to the tendency

of affiliates to use spam to promote the programs in which they were enrolled.[21] As affiliate

marketing has matured many affiliate merchants have refined their terms and conditions to prohibit

affiliates from spamming.

Search engine spam / spamdexing

There used to be much debate around the affiliate practice of spamdexing and many affiliates have

converted from sending email spam to creating large volumes of autogenerated webpages, many-a-times,

using product data-feeds provided by merchants. Each devoted to different niche keywords as a way of

"SEOing" (see search engine optimization) their sites with the search engines. This is sometimes

referred to as spamming the search engine results. Spam is the biggest threat to organic search engines

whose goal is to provide quality search results for keywords or phrases entered by their users. Google's

algorithm update dubbed "BigDaddy" in February 2006 which was the final stage of Google's major update

dubbed "Jagger" which started mid-summer 2005 specifically targeted this kind of spam with great success

and enabled Google to remove a large amount of mostly computer generated duplicate content from its

index.

Sites made up mostly of affiliate links are usually badly regarded as they do not offer quality content.

In 2005 there were active changes made by Google whereby certain websites were labeled as "thin

affiliates"[22] and were either removed from the index, or taken from the first 2 pages of the results

and moved deeper within the index. In order to avoid this categorization, webmasters who are affiliate

marketers must create real value within their websites that distinguishes their work from the work of

spammers or banner farms with nothing but links leading to the merchant sites.

Affiliate links work best in the context of the information contained within the website. For instance,

if a website is about "How to publish a website", within the content an affiliate link leading to a

merchant's ISP site would be appropriate. If a website is about sports, then an affiliate link leading

to a sporting goods site might work well within the content of the articles and information about

sports. The idea is to publish quality information within the site, and to link "in context" to related

merchant's sites.

Web 2.0

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The rise of blogging, interactive online communities and other new technologies, web sites and services

based on the concepts that are now called Web 2.0 have impacted the affiliate marketing world as well.

The new media allowed merchants to get closer to their affiliates and improved communication between

each other.[9][10] New developments have made it harder for unscrupulous affiliates to make money.

Emerging black sheep are detected and made known to the affiliate marketing community with much greater

speed and efficiency.

Compensation methods

Main article: Compensation methods

Predominant compensation methods

80% of affiliate programs today use revenue sharing or cost per sale (CPS) as compensation method, 19%

use cost per action (CPA) and the remaining 1% are other methods, such as cost per click (CPC) or cost

per mille (CPM).[11]

Diminished compensation methods

The use of pay per click (PPC/CPC) and pay per impression (CPM/CPT) in traditional affiliate marketing

is far less than 1% today and negligible.

Cost per mille (thousand) (CPM/CPT) requires the publisher only to load the advertising on his website

and show it to his visitors in order to get paid a commission, while PPC requires one additional step in

the conversion process to generate revenue for the publisher. Visitors must not only made aware of the

ad, but also pursue them to click on it and visit the advertiser's website.

Cost per click (CPC/PPC) used to be more common in the early days of affiliate marketing, but diminished

over time due to click fraud issues that are very similar to the click fraud issues modern search

engines are facing today. Contextual advertising, such as Google AdSense are not considered in this

statistic. It is not specified yet, if contextual advertising can be considered affiliate marketing or

not.

Compensation methods for other online marketing channels

Pay per click is the predominant compensation model for pay per click search engines and their

contextual advertising platforms, while pay per impression is the predominant compensation model for

display advertising. CPM is used as a compensation method by Google for their AdSense/AdWords feature

"Advertise on this website", but this is an exception in search engine marketing.

While search engines only recently started experimenting with the compensation structures of traditional

affiliate marketing, such as pay per action/CPA,[12] they have used similar models in display

advertising, offering CPA as early as 1998.[13] By the end of 2006, the market share of the

CPA/performance pricing model (47%) caught up with the CPM pricing model (48%)[14] and will become the

dominant pricing model for display advertising, if the trend of the last 9 years continues in 2007.[15]

CPM/CPC versus CPA/CPS (performance marketing)

In the case of CPM or CPC, the publisher does not care if the visitor is the type of audience that the

advertiser tries to attract and is able to convert, because the publisher already earned his commission

at this point. This leaves the greater, and, in case of CPM, the full risk and loss (if the visitor can

not be converted) to the advertiser.

CPA and CPS require that referred visitors do more than visiting the advertiser's website in order for

the affiliate to get paid commission. The advertiser must convert that visitor first. It is in the best

interest for the affiliate to send the best targeted traffic to the advertiser as possible to increase

the chance of a conversion. The risk and loss is shared between the affiliate and the advertiser.

For this reason affiliate marketing is also called "performance marketing", in reference to how

employees that work in sales are typically being compensated. Employees in sales are usually getting

paid sales commission for every sale they close and sometimes a performance incentives for exceeding

targeted baselines.[16] Affiliates are not employed by the advertiser whose products or services they

promote, but the compensation models applied to affiliate marketing are very similar to the ones used

for people in the advertisers' internal sales department.

The phrase, "Affiliates are an extended sales force for your business", which is often used to explain

affiliate marketing, is not 100% accurate. The main difference between the two is that affiliate

marketers cannot, or not much influence a possible prospect in the conversion process, once the prospect

was sent away to the advertiser's website. The sales team of the advertiser on the other hand does have

the control and influence, up to the point where the prospect signs the contract or completes the

purchase.

Illustration of the concept of affiliate marketing

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Affiliate marketing is a method of promoting web businesses (merchants/advertisers) in which an

affiliate (publisher) is rewarded for every visitor, subscriber, customer, and/or sale provided through

his/her efforts.

Affiliate marketing is also the name of the industry where a number of different types of companies and

individuals are performing this form of internet marketing, including affiliate networks, affiliate

management companies and in-house affiliate managers, specialized 3rd party vendors and various types of

affiliates/publishers who utilize a number of different methods to advertise the products and services

of their merchant/advertiser partners.

Affiliate marketing overlaps with other internet marketing methods to some degree, because affiliates

are using the same methods as most of the merchants themselves do. Those methods include organic search

engine optimization, paid search engine marketing, email marketing and to some degree display

advertising.

Affiliate marketing - using one site to drive traffic to another - is the stepchild of online marketing.

While search engines, e-mail and RSS capture much of the attention of online retailers, affiliate

marketing, despite lineage that goes back almost to the beginning of online retailing, carries a much

lower profile. Yet affiliates continue to play a fundamental role in e-retailers' marketing strategies.

[1]

History

The beginning

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 electronic commerce on

the internet happened almost four years after the World Wide Web was born in November 1994 when CDNow

launched its BuyWeb program.

With its BuyWeb program, CDNow was the first to introduce the concept of an affiliate or associate

program with its idea of click-through purchasing through independent, online storefronts.

CDNow.com had the idea that music-oriented web sites could review or list albums on their pages that

their visitors might be interested in purchasing and offer a link that would take the visitor directly

to CDNow to purchase them. The idea for this remote purchasing originally arose because of conversations

with a music publisher called Geffen Records in the fall of 1994. The management at Geffen Records

wanted to sell its artists’ CDs directly from its site but did not want to do it itself. Geffen Records

asked CDNow if it could design a program where CDNow would do the fulfillment.

Geffen Records realized that CDNow could link directly from the artist on its Web site to Geffen’s web

site, bypassing the CDNow home page and going directly to an artist’s music page.[2]

Affiliate marketing was used on the internet by the adult industry before CDNow launched their BuyWeb

program. The consensus of marketers and adult industry insiders is that Cybererotica was either the

first or among the early innovators in affiliate marketing with a cost-per-click program.[3]

Amazon.com launched its associate program in July 1996. Amazon associates would place banner or text

links on their site for individual books or link directly to the Amazon’s home page.

When visitors clicked from the associate’s site through to Amazon.com and purchased a book, the

associate received a commission. Amazon.com was not the first merchant to offer an affiliate program,

but its program was the first to became widely known and served as a model for subsequent programs.[4]

[5]

In February 2000, Amazon.com announced that it had been granted a patent (6,029,141) on all the

essential components of an affiliate program. The patent application was submitted in June 1997, which

was before most affiliate programs but not before PC Flowers & Gifts.com (October 1994), AutoWeb.com

(October 1995), Kbkids.com/BrainPlay.com (January 1996), EPage(April 1996), and a handful of others.[3]

Historic development

Affiliate marketing has grown quickly since its inception. The e-commerce website, viewed as a marketing

toy in the early days of the web, became an integrated part of the overall business plan and in some

cases grew to a bigger business than the existing offline business. According to one report, total sales

generated through affiliate networks in 2006 was £2.16 billion in the UK alone. The estimates were £1.35

billion in sales in 2005.[6] MarketingSherpa's research team estimated that, in 2006, affiliates

worldwide earned $6.5 billion in bounty and commissions from a variety of sources in retail, personal

finance, gaming and gambling, travel, telecom, education, publishing and forms of lead generation other

than contextual ad networks such as Google AdSense.[7]

Currently the most active sectors for affiliate marketing are the adult, gambling and retail sectors.[8]

The three sectors expected to experience the greatest growth are the mobile phone, finance and travel

sectors.[8] Hot on the heels of these are the entertainment (particularly gaming) and internet-related

services (particularly broadband) sectors. Also several of the affiliate solution providers expect to

see increased interest from B2B marketers and advertisers in using affiliate marketing as part of their

mix.[8] Of course, this is constantly subject to change.

Search Engine Marketing

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Search Engine Marketing, or SEM, is a form of Internet Marketing that seeks to promote websites by

increasing their visibility in the Search Engine result pages (SERPs). According to the Search Engine

Marketing Professionals Organization, SEM methods include: Search Engine Optimization (or SEO), paid

placement, and paid inclusion.[1] Other sources, including the New York Times, define SEM as the

practice of buying paid search listings with the goal of obtaining better free search listings.[2][3]

Market structure

In 2006, North American advertisers spent US$9.4 billion on search engine marketing, a 62% increase over

the prior year and a 750% increase over the 2002 year. The largest SEM vendors are Google AdWords,

Yahoo! Search Marketing and Microsoft adCenter.[1] As of 2006, SEM was growing much faster than

traditional advertising. [2]

History

As the number of sites on the Web increased in the mid-to-late 90s, search engines started appearing to

help people find information quickly. Search engines developed business models to finance their

services, such as pay per click programs offered by Open Text [4] in 1996 and then Goto.com [5] in 1998.

Goto.com later changed its name [6] to Overture in 2001, and was purchased by Yahoo! in 2003, and now

offers paid search opportunities for advertisers through Yahoo! Search Marketing. Google also began to

offer advertisements on search results pages in 2000 through the Google AdWords program. By 2007 pay-

per-click programs proved to be primary money-makers [7] for search engines.

Search Engine Optimization consultants expanded their offerings to help businesses learn about and use

the advertising opportunites offered by search engines, and new agencies focusing primarily upon

marketing and advertising through search engines emerged. The term "Search Engine Marketing" was

proposed by Danny Sullivan in 2001 [8] to cover the spectrum of activities involved in performing SEO,

managing paid listings at the search engines, submitting sites to directories, and developing online

marketing strategies for businesses, organizations, and individuals. In 2007 Search Engine Marketing is

stronger than ever [9] with SEM Budgets up 750% as shown with stats dating back to 2002 vs 2006.

Ethical questions

Paid search advertising hasn't been without controversy, and issues around how many search engines

present advertising on their pages of search result sets have been the target of a series of studies and

reports [10] [11] [12] by Consumer Reports WebWatch, from Consumers Union. The FTC also issued a letter

[13] in 2002 about the importance of disclosure of paid advertising on search engines, in response to a

complaint from Commercial Alert, a consumer advocacy group with ties to Ralph Nader.

Effects on industries

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Effects on industries

Internet marketing has had a large impact on several industries including music, banking, and flea

markets - not to mention the advertising industry itself.

As Advertisers increase and shift more of their budgets online, it is now overtaking radio in terms of

market share.[1]

In the music industry, many consumers have begun buying and downloading music files (e.g. MP3s) over the

Internet instead of simply buying CDs.

More and more banks are offering the ability to perform banking tasks online. Online banking is believed

to appeal to customers because it is more convenient than visiting bank branches. Currently, over 150

million U.S. adults now bank online. Online banking is now the fastest-growing Internet activity. The

increasing speed of Internet connections is the main reason for the fast-growth. Of those individuals

who use the Internet, 44% now perform banking activities over the Internet.

Internet auctions have gained popularity. Unique items that could previously be found at flea markets

are being sold on eBay instead. eBay has also affected the prices in the industry. Buyers and sellers

often look at prices on the website before going to flea markets and the eBay price often becomes what

the item is sold for. More and more flea market sellers are putting their items up for sale online and

running their business out of their homes.

The effect on the ad industry itself has been profound. In just a few years, online advertising has

grown to be worth tens of billions of dollars annually.[2][3][4] PricewaterhouseCoopers reported US

Internet marketing spend totalled $16.9 billion in 2006 [5].

Security concerns

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For both companies and consumers that participate in online business, security concerns are very

important. Many consumers are hesitant to buy items over the Internet because they do not trust that

their personal information will remain private. Recently, some companies that do business online have

been caught giving away or selling information about their customers. Several of these companies have

guarantees on their websites, claiming customer information will be private. By selling customer

information, these companies are breaking their own, publicized policy. Some companies that buy customer

information offer the option for individuals to have their information removed from the database (known

as opting out). However, many customers are unaware that their information is being shared and are

unable to stop the transfer of their information between companies.

Security concerns are of great importance and online companies have been working hard to create

solutions. Encryption is one of the main methods for dealing with privacy and security concerns on the

Internet. Encryption is defined as the conversion of data into a form called a cipher. This cipher

cannot be easily intercepted unless an individual is authorized by the program or company that completed

the encryption. In general, the stronger the cipher, the better protected the data is. However, the

stronger the cipher, the more expensive encryption becomes.

Effects on industries
Internet marketing has had a large impact on several industries including music, banking, and flea

markets - not to mention the advertising industry itself.

Definition and scope

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