What is Affiliate Marketing?

af·fil·i·ate mar·ket·ing

a marketing arrangement by which an online retailer pays commission to a partner for performance-driven action from its referrals.

Who is Involved in Affiliate Marketing?

  1. Advertiser/Brand/Retailer: A person or company who has a product or service to sell online or in-store.
  2. Publisher Partner/Affiliate: A person or company who partners with an advertiser to promote their product or service and then receives a commission from the advertiser whenever agreed-upon outcomes occur.
  3. Affiliate Network/Platform: An intermediary between advertisers and publishers who operate affiliate programs.
  4. Consumer: A person who purchases products or services.

How Does Affiliate Marketing Work?

 A reader or consumer then clicks on one of the tracking links and is directed to the advertiser’s site. If the consumer completes an action, like a purchase, submits a qualified lead or downloads a mobile app, the partner receives a commission for that action. Note that in practice, advertisers generally work with more than one partner to get the maximum amount of exposure, provided they’re the right partner for that brand (but more on that later).

It is through this method that affiliate marketing has generated billions of dollars in sales. It has also made it possible for a wide variety of partners—from kids reviewing toys to news publications providing information to social media influencers offering product reviews—to make a significant income without ever having to actually own or distribute the inventory or facilitate the ecommerce transaction.   

According to Harvard Business Review back in 2012, affiliate marketing was considerably more valuable (6x!) than conventional marketing in part because the advertisements were targeted to online spaces with traffic types already interested in the specific product or service. Today, affiliate marketing is firmly positioned at every stage of the buyer funnel—from awareness to conversion—offering valuable, quality content to buyers at every touchpoint.

As Investopedia explains, affiliate marketing existed long before the internet (think: word of mouth advertising). However, digital marketing and publishing, along with the ability to track cookies and use analytics, has truly propelled it to a new level—and it’s likely to evolve even further over the coming decades. That’s why, if you’re a brand or advertiser looking to leverage affiliate marketing to promote your products or services or if you’re a publishing partner aiming to generate or increase revenue, it’s important to understand the current state of the industry and how it’s developing.

In this white paper, we’ll look at brief history of affiliate marketing and discuss some important points to keep in mind in relation to SaaS (software as a service) and affiliate services providers. We’ll also take a closer look at what’s really happening in the industry and offer some statistical takeaways to provide an accurate picture of how affiliate marketing is developing and what’s to come.

When Did Affiliate Marketing Start?

To many experts, affiliate as we know it today, can be traced back to 1989 when William J. Tobin set up an internet affiliate marketing program for his business, PC Flowers & Gifts. He patented his idea in 1996, and the patent was granted in 2000, as Medium reports.

In 1996, affiliate marketing was then popularized by Amazon when it first started paying bloggers and other partners commission to drive traffic to its site via its Associates’ program. Other affiliate programs soon followed, including BeFree, Linkshare, Commission Junction and the Clickbank Network. Initially, many brands gave commissions simply for driving traffic to their sites. Later, especially after the devastating dot com crash in the early 2000s, affiliate marketing became increasingly driven by viable leads and sales.

Note that the development of cookies—small pieces of data that track what a specific user is doing in their browser—greatly accelerated the use of affiliate marketing, as they made it easier for advertisers to see where their traffic was coming from. This in turn clarified which strategies were and weren’t working as well as which publishers drove a lot of traffic—and which did not—to advertisers’ sites.

Does Affiliate Marketing Work as an Advertising Channel?

Today, more than 80% of brands—including many common household brands—have affiliate marketing programs. So why is this method of marketing so successful? The main reason is that it enables advertisers to diversify their marketing, supplement existing marketing programs and pay for performance rather than paying for access, as found in other paid digital channels. Blogs and social media—including YouTube and the wildly popular TikTok, just for examples—have changed how the public consumes information. Knowing that, it’s not surprising that affiliate partners are also bloggers, YouTube stars, social media influencers and general thought leaders—each with their own vehicle for promoting the product or service—for example blog posts, YouTube videos, Instagram posts or op-ed pieces. And it’s precisely this variety of content that makes affiliate marketing such a resounding success.

Today’s consumers are as savvy as they’ve ever been and hold brands accountable in ways they never have before. Nowadays, transparency is key, so advertisers must find ways to promote products and services without sounding too pushy or salesy. To accomplish this, many modern brands leverage their core values and beliefs as the cornerstone to their messaging. For example, TOMS shoes built their brand on giving back by forwarding portions of their proceeds to provide shoes, sight and safe water to those in need. Working with partners who share the same belief and mission is paramount to TOMS’ awareness, messaging, branding—and conversion success. The ability to be an effective storyteller is also critical for both brands and partners and they need to be harmonious when it comes to the story they’re telling.

Ultimately, the key is finding the right partner for your brand: one that has built a solid audience who is also interested in the products or services you’re selling. Since these partners are able—and highly motivated by potential commissions—to create engaging content while promoting products or services, the traffic generated from their sites is more likely to be high-quality and therefore, more likely to convert.

By incorporating affiliate marketing into their strategy, partners can generate quite an impressive revenue source. In fact, affiliate commissions now account for as much as 20% of partners’ total revenue. At the same time, it’s important to note affiliate marketing is responsible for around 16% of e-commerce sales while being poised to grow to $6.8B by 2020. For these reasons, both advertisers and partners have grown to rely significantly on affiliate marketing networks and platforms—online marketplaces where advertisers and partners can connect, engage and manage every aspect of their programs, from tracking to payments.

And all things considered, in today’s world of commerce, affiliate marketing plays a critical role in the buyer’s journey. To illustrate: A recent Forrester survey cited  83% of advertisers use an affiliate network or platform to coordinate deals with partners. In short, brands understand the power of word of mouth advertising and it’s hard to top the affiliate channel as the digital age’s strongest form of word of mouth advertising.

Is Affiliate Marketing Legit? Spoiler Alert: It is.

Unfortunately, despite all the positive impact affiliate has made on modern marketing including being one of the first channels to monetize Instagram and social pages while also infiltrating podcast advertising, there are still several misperceptions that surround it—and in the past, have lent to a less-than-savory misconception about the channel at large.  

The first misperception being that affiliate marketing is a scam. In addition, some people believe that affiliate marketing leads to low-value traffic and few sales concluding a “we would’ve gotten the customer anyway” mentality. However, nothing could be further from the truth. As we outlined earlier, affiliate marketing is a mainstream channel that generates a significant portion of all e-commerce sales. In fact, 16% of all online orders can be attributed to the contribution of affiliate marketing.

An additional misconception is that affiliate is a lower funnel, perhaps lower-value channel and this perception was largely devised post-recession when consumers were looking for all the savings they could find. As a result, thanks to these savvy and fiscally-conscious consumers, coupon and loyalty dominated the last-click position and unfairly, the channel garnered a reputation for not really adding any incremental value. Couple that with the fact that brands’ and retailers’ attribution and measurement systems were already generally setup on a last-click model, meaning the last click received the credit for the conversion event and it’s easy to see how the true value of affiliate was missed altogether.

However, we now know that this belief simply isn’t true, and that affiliate occupies all stages of the consumer buyer journey. Thanks to an emphasis on transparency, there is visibility into traffic and sources of referral and reporting is available, easily exportable and usable in brands’ system of record, MTA, etc. Affiliate marketing has gone mainstream with more and more publishing houses are monetizing their digital editorial content with affiliate marketing, a testament to affiliate occupying all stages of the funnel—not just last click.

Brand safety is also a paramount concern in the affiliate channel. How could brands be certain that publishers are representing their products in their likeness? Today, protection tools are in place to provide compliance monitoring, domain monitoring and fraud detection to ensure that proactive steps are taken to understanding how brands are promoted by publishers/partners.

So where do these misperceptions come from? According to Shopify, in the early years of affiliate marketing, fraudsters would often employ harmful methods to increase their commissions or obtain data. Black hat SEO, cookie stuffing, link farms, typosquatting, brandjacking, spyware, spam and trademark infringement were just a few of the strategies they employed. Later, scripts were written that fraudulently generated multiple clicks—and as a result ramped up earnings.

Fortunately, with significant advancements in affiliate technology, these practices have been drastically eliminated—and that means by and large, the affiliate marketing industry of today is transparent, above board and a highly-effective marketing tactic.

That said, along with advancements in affiliate technology, there are also several notable trends in the channel today.

  1. Carefully honed campaign tracking tools: Today, it’s possible to track referrals from a range of media, including phone and coupon codes. You can even track in-store purchases that result from online referrals, as well as referrals across multiple devices. As a result, it’s easier for advertisers and publishers to see what does and doesn’t work.
  2. The rise of influencers: Certain social media figures have great influence on their audiences—so much so that they inspire them to purchase specific products or services. As Social Media Week explains, a growing number of publishers are moving away from blogging and instead choosing Tik Tok, YouTube and Instagram as platforms for their content. Think of the success of Jason Stone, who generated more than $7M in affiliate sales through his Instagram account @Millionair_Mentor.
  3. The use of mobile push notifications in affiliate marketing: Although push notifications are verboten on iOS devices, there are marketing workarounds that produce pushes through apps that you have elected to download on iOS. While it may be tricky to master push notifications due to permission restrictions and general character length restrictions, it’s proving to be a good way for newer advertisers with small budgets to enter the market as the audience is targeted, having already installed the app on their device.

What Do You Need to Know About SaaS Providers in Affiliate Marketing?

Software as a Service—or SaaS—is a rapidly expanding industry, and due to its fixed-cost model, it’s one that’s attractive to affiliate marketers. According to MarketWatch, the SaaS market will grow at a CAGR of 21% through 2022 and be valued at $117B by the beginning of 2023. Key players in this industry include Salesforce, IBM Corporation, Oracle Corporation, Microsoft Inc., and Google Inc. Think products like Microsoft’s Office 365, which offers business software—such as Word, Excel and Outlook—along with cloud storage to users for a monthly fee. And every day, new SaaS providers are appearing on the market offering everything from CRMs to online bill collection—and affiliate marketing platforms are no exception. But does this SaaS model make sense for everyone? Yes and no.

Traditionally, many marketers who are versed in affiliate marketing, are also accustomed to the channel operating on a pay-for-performance model, which proves attractive for some, but not necessarily for all. Case in point: There is safety in a model where costs are only absorbed upon conversion. But as conversions scale, volume becomes a key consideration—and predictability is lost.

In short, it’s simply not enough for customers to assume an affiliate provider is fine-tuned to their precise needs—so they must do the homework to know what they’re signing up for. And that’s something that both advertisers and publishing partners need to consider when choosing their affiliate technology provider.

Takeaway: What are Some Affiliate Marketing Truths?

To truly understand the present state of affiliate marketing, where it’s headed and why it’s here to stay—firmly planted in any sophisticated marketers’ arsenal—we’ll leave you with some quick and insightful statistics:

  1. Affiliate marketing programs are projected to continue to grow by 10% each year for the next two years.
  2. Currently, the global affiliate marketing industry is worth more than $12B.
  3. Affiliate marketing now accounts for 15% of digital marketing revenue.
  4. Affiliate programs generate an average of between 15% and 30% of all sales for advertisers.
  5. In 2017, users clicked over five billion times, and worldwide, affiliate marketing networks and platforms performed more than 170M transactions.
  6. More than half of all affiliate-referred traffic originates with mobile devices.
  7. Between December 2017 and June 2018, the search term “affiliate marketing” was used 44 percent more frequently than in the six months prior.

The Pepperjam Solution: Ascend™

At Pepperjam, it’s our mission to help advertisers and partners realize their objectives by providing premier technology and leading services. By doing so, we aim to propel like-minded marketers into the future of affiliate marketing.

Introducing Ascend™: An integrated and comprehensive affiliate marketing lifecycle platform that gives performance marketers access to category-defining discovery, recruitment, attribution, commission, fraud prevention—and payment capabilities—in a single-stack solution.

Contact us today to learn how you can harness the power of an affiliate marketing platform built with the needs of today’s marketer in mind.