Affiliate marketing

Based on Wikipedia: Affiliate marketing

The Flower Shop That Invented Internet Commerce

In 1989, a man named William Tobin started selling flowers and gifts through a now-forgotten online service called Prodigy. By 1993, his company—PC Flowers & Gifts—was pulling in more than six million dollars a year. But Tobin wasn't satisfied with just selling bouquets. He had a bigger idea: what if he paid other people a cut of every sale they sent his way?

That simple question launched an entire industry.

Tobin didn't just pioneer affiliate marketing. He patented it. On January 22, 1996, he filed for a patent on tracking and affiliate marketing, eventually receiving U.S. Patent number 6,141,666 in October 2000. By then, his idea had already transformed how business worked on the internet.

What Affiliate Marketing Actually Is

Strip away the jargon, and affiliate marketing is refreshingly simple. A business pays someone a commission for sending them customers. That's it.

The "someone" is called an affiliate. The business is called the merchant. When you—the customer—click a special link on a website and end up buying something, the affiliate earns a piece of that sale. Usually it's a percentage of the purchase price, though sometimes it's a flat fee per referral.

Think of it as a finder's fee, scaled to the internet age.

The affiliate might be a blogger reviewing products, a comparison shopping website, a coupon aggregator, or even someone with a popular social media following. Their job is to send qualified buyers to the merchant. The merchant's job is to close the sale and ship the product. Everyone wins: the merchant gets customers they wouldn't have found otherwise, the affiliate gets paid for their promotional work, and the buyer discovers products that might genuinely interest them.

The Revolution Before Amazon

Most people assume Amazon invented affiliate marketing. They didn't.

Amazon launched their associate program in July 1996, and it became the template everyone copied. Associates could place banner ads or text links on their websites pointing to specific books on Amazon. When visitors clicked through and bought something, the associate earned a commission. The program was elegant, easy to understand, and wildly successful.

But the idea had been circulating for years. Beyond Tobin's flower shop, CDNow launched something called the BuyWeb program back in November 1994. Here's how it worked: music-oriented websites could list albums their visitors might want to buy. Click a link, and you'd land directly on CDNow's page for that album, ready to purchase.

The genesis of BuyWeb came from an unexpected place. The management at Geffen Records wanted to sell CDs directly from their website but didn't want to handle order fulfillment themselves. So they asked CDNow to set up a system where CDNow would process orders that originated from Geffen's site. The record label realized they could link straight from an artist's page to CDNow, bypassing the middleman's homepage entirely.

It was, in retrospect, a perfect arrangement. Geffen got to sell music without the logistics headache. CDNow got customers they didn't have to find. The concept of revenue sharing—paying commission for referred business—predates the internet entirely. Tobin and CDNow simply figured out how to make it work in the digital world.

How Affiliates Actually Get Paid

Not all affiliate arrangements work the same way. The compensation model matters enormously, both for the affiliate and the merchant, because it determines who bears the risk.

The most common approach today is called pay per sale, or sometimes revenue sharing. Eighty percent of affiliate programs use this model. The affiliate only gets paid when an actual sale happens. If you click their link, browse around, and leave without buying, the affiliate earns nothing. The merchant loves this because they only pay for results. The affiliate bears all the risk of sending traffic that doesn't convert.

Nineteen percent of programs use something called cost per action, often abbreviated as CPA. Here, the affiliate gets paid when a visitor takes a specific action—maybe signing up for a newsletter, filling out a form, or starting a free trial. The action doesn't have to be a purchase, but it has to be something the merchant values.

The remaining programs use older models that have largely fallen out of favor.

Cost per click, or CPC, pays the affiliate whenever someone clicks their link, regardless of what happens next. This was popular in the early days of affiliate marketing but declined sharply due to a problem called click fraud. Unscrupulous affiliates—or sometimes automated bots—would generate fake clicks to inflate their earnings. The merchant would pay for traffic that had no intention of buying anything. Search engines face the exact same problem with their paid advertising today.

Cost per mille, or CPM (from the Latin word for thousand), pays the affiliate a set amount for every thousand times an ad is displayed. The visitor doesn't even have to click—just seeing the ad counts. This puts virtually all the risk on the merchant. They're paying for eyeballs that might never become customers.

Interestingly, these older models still thrive in certain markets. In China, for instance, many affiliates get paid a flat "cost per day" rate, regardless of performance. The affiliate marketing landscape there looks quite different from what developed in the West.

The Mechanics of Tracking

Here's the technical puzzle that makes affiliate marketing work: how does the merchant know which affiliate sent a particular customer?

The answer involves tracking cookies. When you click an affiliate link, a small piece of data gets stored in your browser. If you make a purchase within a certain window—often 30 days, though it varies—the merchant's system reads that cookie and credits the sale to the right affiliate.

This tracking happens invisibly. You probably don't notice it. But it's the foundation of the entire industry. Without reliable tracking, merchants couldn't pay affiliates fairly, and the whole system would collapse.

Most merchants don't build their own tracking systems. They join affiliate networks—companies that provide reporting tools, handle payment processing, and maintain relationships with thousands of affiliates. These networks act as matchmakers, connecting merchants who want promotion with affiliates who have audiences.

The largest companies, like Amazon, run their own in-house affiliate networks. But for smaller merchants, joining an existing network makes far more sense than building infrastructure from scratch.

The Dark Side of Performance Marketing

Affiliate marketing has a reputation problem, and that reputation is at least partly deserved.

The industry's pay-for-performance model creates powerful incentives. When affiliates only earn money by driving actions, some of them will pursue those actions through any means necessary. The result has been a history of abuse that the industry still struggles to shake.

Spam is the most obvious offense. In the early days, affiliates would blast promotional emails to purchased lists, clogging inboxes with unwanted offers. The affiliate earned commissions; the merchant got customers; the recipients got annoyed. Even though most affiliate programs now explicitly prohibit spam, enforcement remains inconsistent.

More sophisticated abuses followed. Cookie stuffing involves secretly placing affiliate tracking cookies on users' computers without their knowledge. If those users later make purchases, the affiliate gets credit for sales they did nothing to generate. It's fraud, essentially—claiming commission for work that never happened.

Typosquatting targets users who mistype popular web addresses. Register a domain like "Amazno.com" and redirect visitors to Amazon through your affiliate link. When they buy something—thinking they typed the URL correctly—you collect a commission.

False advertising presents products in misleading ways to drive clicks. Trademark infringement uses brand names without permission. Adware installs itself on computers and injects affiliate links into ordinary browsing. The list of bad behavior is long and creative.

These unethical methods gave affiliate marketing a negative reputation that persists today. When people hear "affiliate marketing," they often think of scams and spam rather than legitimate commerce. The industry has worked to clean itself up, but the stain remains.

How It Differs From Multi-Level Marketing

Affiliate marketing sometimes gets confused with multi-level marketing, commonly called MLM. The confusion is understandable—both involve paying people for generating sales. But the differences matter enormously.

In standard affiliate marketing, you earn commission on sales you directly generate. Period. If you refer a customer who buys a product, you get paid. That customer might refer other customers, but you don't see a penny of those downstream sales.

Multi-level marketing adds layers. You earn commissions not just on your own sales, but on sales made by people you recruit, and sometimes on sales made by people they recruit. The "multi-level" refers to these different tiers of compensation.

Some affiliate programs do offer multi-tier structures. Publisher A might recruit Publisher B into the program. When Publisher B generates sales, Publisher A receives a small additional commission—smaller than what Publisher B earns, but something. However, these two-tier programs remain a minority. Most affiliate arrangements are simple one-tier deals.

The real concern with MLM isn't the multi-level structure itself. The problem arises when income from recruitment fees exceeds income from selling actual products. At that point, the scheme starts to resemble a pyramid scheme, where early participants profit mainly by recruiting later participants. Some MLM companies have crossed this line and faced legal consequences.

Legitimate affiliate marketing stays far from this territory. Affiliates earn money by selling products to real customers, not by recruiting other affiliates.

The Ecosystem of Affiliates

Who actually does this work? The affiliate ecosystem is remarkably diverse.

Search affiliates use paid search engine advertising to promote merchant offers. They bid on keywords, run ads, and hope the commissions they earn exceed what they spend on advertising. This practice, sometimes called search arbitrage, requires sophisticated knowledge of search marketing economics.

Price comparison websites aggregate offers from multiple merchants, helping consumers find the best deals. When a shopper clicks through and buys, the comparison site earns a commission. These sites add genuine value by saving consumers time and money.

Loyalty programs give members points, miles, or cashback for purchases made through their portals. The airline miles you earn by shopping through a credit card website? That's affiliate marketing. The loyalty program gets a commission and shares part of it with you.

Coupon sites collect discount codes and promotional offers. Consumers visit looking for deals; the site earns commissions when those deals convert to purchases. The value proposition is clear, though merchants sometimes grumble that coupon sites take credit for sales that would have happened anyway.

Content creators—bloggers, reviewers, YouTubers, podcast hosts—recommend products to their audiences. When those recommendations come with affiliate links, the creator earns money if viewers make purchases. Done well, this aligns incentives nicely: the creator only recommends products they genuinely believe in, because bad recommendations would damage their credibility.

Email marketers maintain large opt-in lists and send targeted promotions. Newsletter publishers do something similar, embedding affiliate offers within content their subscribers actually want to read.

The rise of Web 2.0—blogging platforms, social media, interactive online communities—dramatically expanded who could participate in affiliate marketing. You no longer needed a sophisticated website. A personal blog with decent traffic could generate meaningful income. This democratization brought millions of new affiliates into the ecosystem.

Why Merchants Love This Model

From a merchant's perspective, affiliate marketing is nearly risk-free advertising.

Traditional advertising requires spending money upfront with no guarantee of results. You buy a television commercial, run a newspaper ad, or pay for a billboard. Maybe those ads drive sales. Maybe they don't. Either way, you've already spent the money.

Affiliate marketing flips this equation. Under the dominant pay-for-performance model, merchants only pay when results actually happen. No sale, no commission. The marketing expense becomes a percentage of revenue rather than a fixed cost.

This structure particularly appeals to smaller businesses. A startup with limited marketing budget can launch an affiliate program and pay nothing until sales come in. The affiliates take on the upfront risk of promotion—spending their time and sometimes their money on advertising—and only get rewarded if their efforts work.

Merchants also gain access to audiences they couldn't reach otherwise. An affiliate with a loyal following in a niche market can introduce products to potential customers the merchant would never have found through other channels. It's like having a massive, distributed sales force that only gets paid on commission.

The comparison to salespeople is apt. Like sales employees, affiliates are compensated based on performance. Unlike sales employees, affiliates aren't on the merchant's payroll. They don't receive benefits, training, or management oversight. They're independent operators pursuing their own interests—which happen to align with the merchant's interest in selling products.

The Limits of the Analogy

But affiliates aren't really salespeople, and the distinction matters.

A traditional salesperson influences the prospect throughout the buying process. They answer questions, overcome objections, negotiate terms, and guide the customer toward a decision. They have control over the conversion process.

Affiliates don't have that control. Their job ends when the referral happens. Once a prospect clicks through to the merchant's website, the affiliate can no longer influence what happens next. If the merchant's website is confusing, if the checkout process is frustrating, if the pricing seems wrong—the affiliate loses the sale through no fault of their own.

This creates an interesting tension. Affiliates want to send the most qualified, ready-to-buy traffic possible, because their commission depends on conversion. But they can't actually close the deal. They have to trust that the merchant won't fumble the handoff.

Smart merchants understand this dependency. They work to convert the traffic affiliates send, because wasted traffic means disgruntled affiliates who might take their audiences elsewhere.

The Numbers Behind the Industry

Affiliate marketing grew from a clever idea into a multi-billion-dollar industry with surprising speed.

By 2006, total sales generated through affiliate networks in the United Kingdom alone reached £2.16 billion—up from an estimated £1.35 billion just a year earlier. Globally, affiliates earned an estimated $6.5 billion in commissions that year, across sectors ranging from retail to finance to travel to online gaming.

Those figures are nearly two decades old now. The industry has grown substantially since then, though precise numbers are hard to pin down because so much activity happens through private arrangements rather than public networks.

The most active sectors in those early years were somewhat disreputable: adult content, gambling, and file-sharing services. These industries faced advertising restrictions on mainstream platforms and turned to affiliates as an alternative channel. The pattern makes sense—affiliate marketing thrives wherever traditional advertising struggles.

More mainstream sectors followed. Mobile phones, finance, and travel saw rapid affiliate growth. Entertainment, particularly gaming, became a major player. The internet services sector—especially broadband providers—relied heavily on affiliate referrals.

Business-to-business marketers, traditionally slower to adopt new marketing channels, eventually recognized the potential. When you're selling enterprise software or professional services, finding qualified leads is expensive. Affiliate partnerships that deliver decision-makers to your website can be extremely cost-effective.

The Future Already Happened

E-commerce itself was viewed as a "marketing toy" in the early days of the internet. Something fun to experiment with, perhaps, but not a serious business channel. That perception now seems quaint.

Some businesses found that their online affiliate-driven sales eventually exceeded their traditional offline revenue. The tail wagged the dog. Companies that started websites as promotional experiments ended up pivoting their entire business model around digital commerce.

Affiliate marketing rode this wave. As e-commerce grew, so did the infrastructure supporting it. Tracking technology improved. Networks became more sophisticated. Payment processing got easier. What started as a hacky workaround became a mature industry with established practices and substantial capital flows.

Today, if you click a link in a product review, odds are reasonable that it's an affiliate link. If you use a coupon code you found online, an affiliate probably got paid. If you earn points for shopping through a loyalty portal, affiliate commissions fund those rewards. The model has become so pervasive that you interact with it constantly without noticing.

The Trust Problem

All of this raises a question that matters more every year: when someone recommends a product and stands to profit from your purchase, can you trust the recommendation?

The honest answer is: maybe.

Disclosure requirements have tightened. In many jurisdictions, affiliates must now clearly state when they'll earn commissions from links. You've probably seen phrases like "This post contains affiliate links" or "We may earn a commission if you purchase through links on this page." These disclosures, when present, at least let you factor the financial incentive into your evaluation.

But disclosure doesn't eliminate bias. A reviewer who earns more from recommending product A than product B might genuinely believe A is better—or might unconsciously favor it because the commission is higher. Separating authentic enthusiasm from financially motivated promotion isn't always possible.

The best affiliate marketers understand that their audience's trust is their most valuable asset. Recommending bad products might generate short-term commissions but destroys long-term credibility. The smart play is to recommend only products you'd genuinely suggest to a friend—and if you can earn money while doing so, that's a bonus rather than the primary motivation.

Whether any given affiliate follows this principle is impossible to know from the outside.

What William Tobin Built

We started with a flower shop on Prodigy, and we've ended up with a global industry moving billions of dollars annually. The throughline is remarkably consistent: pay people for results, and they'll find creative ways to deliver those results.

Some of that creativity has been admirable. Affiliates have built genuinely useful services—comparison shopping engines, honest review sites, loyalty programs that give real value to consumers. They've connected buyers with products they wanted but wouldn't have found otherwise.

Some of that creativity has been predatory. The spam, the fraud, the manipulation of tracking systems—affiliate marketing has attracted its share of bad actors exploiting the system for personal gain at everyone else's expense.

William Tobin probably didn't foresee either extreme when he started paying commissions for flower sales in 1989. He just wanted to sell more bouquets. The model he pioneered turned out to be far more powerful—and more complicated—than anyone could have predicted.

The next time you click a link and buy something, spare a thought for that flower shop. The entire transaction infrastructure you're using traces back, through a few decades of evolution, to a gift company on an online service that most people have forgotten ever existed.