There are at least three parties in an affiliate program transaction:

• The customer
• The affiliate site
• The merchant site

In 1996, Jeff Bezos, CEO and founder of  Amazon.com, popularized this idea as an Internet marketing strategy. Amazon.com attracts affiliates to post links to individual books for sale on Amazon.com, or for Amazon.com in general, by promising them a percentage of the profits if someone clicks on the link and then purchases books or other items. The affiliate helps make the sale, but Amazon.com does everything else: They take the order, collect the money and ship the book to the customer. With over 500,000 affiliate Web sites now participating, Amazon.com's program is a resounding success.

Over the past few years, affiliate programs have grown enormously in popularity, taking many interesting forms. For many Web sites that don't deal much in e-commerce (selling products or services online) themselves, functioning as an affiliate is a good way to participate in e-commerce.

Payment
There are three basic types of affiliate program payment arrangements:

• Pay-per-sale (also called cost-per-sale): Amazon.com's affiliate program is an example of a pay-per-sale arrangement. In this arrangement, the merchant site pays an affiliate when the affiliate sends them a customer who purchases something. Some merchant Web sites, like Amazon.com, pay the affiliate a percentage of the sale and others pay a fixed amount per sale.

• Pay-per-click (cost-per-click): In these programs, the merchant site pays the affiliate based on the number of visitors who click on the link to come to the merchant's site. They don't have to buy anything, and it doesn't matter to the affiliate what a visitor does once he gets to the merchant's site.

• Pay-per-lead (cost-per-lead): Companies with these programs pay their affiliates based on the number of visitors they refer who sign up as leads. This simply means the visitor fills out some requested information at the merchant site, which the merchant site may use as a sales lead or sell to another company as a sales lead.

There are a number of other arrangements as well. Basically, a company could set up an affiliate program based on any action that would benefit them, and then pay their affiliates based on the number of customers the affiliates send them who perform that action.

There are a couple of very popular variations on these basic payment plans:

• Two-tier programs:These affiliate programs have a structure similar to multilevel marketing organizations (also known as "network marketing") such as Amway or Avon, which profit through commission sales and sales recruitment. In addition to receiving commissions based on sales, clicks or leads stemming from their own site, affiliates in these programs also receive a commission based on the activity of affiliate sites they refer to the merchant site.

• Residual Programs: Affiliates in these programs can keep making money off a visitor they send to the site if the visitor continues to purchase goods or services from the merchant site. Many online merchants who receive regular payments from their customers (such as monthly service fees) run this sort of affiliate program.

Additionally, there are a few pay-per-impression affiliate programs. Companies running these programs, also called pay-per-view programs, pay affiliates based only on the number of visitors who see their banner ad. Usually, this sort of arrangement is not structured as an affiliate program, but simply as a traditional advertising program. The advantage affiliate programs have over traditional advertising is that in an affiliate program, an online merchant only pays its affiliates when it gets a desired result. Traditional advertising, such as the ads you see on TV and a lot of the banner ads on the Internet, is relatively risky for the advertiser. They spend money on advertising based on a guess of its effectiveness. When an ad brings the company more money than it spent on that ad, the ad is a success. If the company makes less money than it spent, it has to swallow that loss. With an affiliate program, an online merchant only pays its affiliates when things are working. Because there's much less risk to the merchant, it's a lot easier for Web sites to join affiliate programs than it is for them to attract advertisers.

How Are Affiliate Programs Administered?
Affiliate programs are pretty simple in concept, but a lot of behind-the-scenes work is necessary to make them work properly. In order for the affiliates to be compensated, someone needs to keep track of the actual activity surrounding the affiliate's link to the merchant site.

Depending on the arrangement, someone might need to determine:

• the number of people who click on the merchant site's link on an affiliate site
• the number of people who end up buying something or performing some other predetermined action once the affiliate sends them to the merchant site.
• the number of people who see the merchant site's banner link on an affiliate site

Someone also has to keep track of the original arrangement between the merchant and the affiliate and make sure the affiliate receives whatever money is owed to them.

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It's a lot of work for merchant Websites to actively recruit affiliates, and for affiliates to search for affiliate programs they are interested in. Nonetheless, many companies, such as Amazon.com, deal with their affiliates directly because the administration is well worth their time. Even though they take full control over the process, and so determine themselves what they owe, these companies can attract a lot of affiliates because their offer has no real risk or cost: All an affiliate webmaster has to do is put the link up and hope the checks come rolling in. For a lot of Web sites, however, all the work of recruiting affiliates or merchant Web sites is just too time consuming. And a lot of webmasters would rather not rely on the merchant site to tally their own bill correctly!

As we'll see in the next section, affiliate program networks offer an excellent solution to these problems.

How to Get Involved in Affiliate Programs
If you are interested in getting involved in affiliate programs, the first thing you have to do is decide whether you want to become an affiliate, want to acquire affiliates, or both. If you run an e-commerce site and would like to increase your sales, you might want to start your own affiliate program. If you run a small content site as a hobby and would simply like to bring in a little money to cover production costs, joining a few programs as an affiliate would be a good option. Your best option depends on what aspects of affiliate programs could best serve your site and how much you are willing to spend.

Becoming an Affiliate
Most affiliate networks are completely free for affiliates.

 Because so many affiliate programs are free to the affiliate, it's probably in your best interest to steer clear of programs with a charge. Once you've chosen some affiliate programs, the online merchants running these programs will have the opportunity to review your site. If they approve you, the affiliate network will walk you through the process of posting the appropriate links, which come directly from the network's site. They will also establish payment arrangements with you. Because the amount of money you earn per action can be extremely small, most affiliate networks have a set minimum payout amount. This means you won't receive a check until the total money owed you reaches a certain amount. After you have set all this up and the affiliate network has explained its system to you, you can get back to work on your Web site's content and wait for your money to come in.

Acquiring Affiliates
Your best bet is probably joining an affiliate network. An affiliate network will help you set up an affiliate program and work to recruit affiliates for you. You'll have to fill out an application describing the nature of your business and your Web site. You'll also have to agree to the terms of the affiliate network and make a number of deposits. These will probably include a one time charge for becoming a member of the network as well as a deposit to be used to pay your affiliates. Some affiliate networks also charge a yearly fee for their services. To join one of the major affiliate networks you'll probably have to put up between $1,000 and $5,000. You will also pay the affiliate network a percentage of every payout to an affiliate. In return, the affiliate network will help you set everything up, keep track of all the activity in your affiliate program, issue your affiliates checks and distribute your links to appropriate affiliates. They will give you the option of reviewing prospective affiliates, or you can choose to accept all interested affiliates automatically.

The alternative to acquiring affiliates, maintaining an affiliate program yourself, is significantly more complicated. Among other things, you would have to screen and recruit all affiliates yourself, purchase and maintain some sort of tracking technology, instruct your affiliates on how to set up links to your site, set up an accounting system for paying all of your affiliates and set up a help line to assist all your affiliates. There are a number of traffic-tracking software applications that will probably cost between $100 and $500, significantly less than joining an affiliate network. Another option is to sign on to a company that keeps track of the traffic involved in your affiliate program by running it through their site on the way to yours. Using one of these companies costs about the same as tracking software, and they also only assist you in tracking. Maintaining the business end of an affiliate program is more than we can explore in this article, which is a good indicator it is also more than most Web sites would want to get into.

• Text links: If you've read How Web Pages Work , then you already know how to make a basic text link. The blue writing in the previous sentence is an example of one. If you click on the text 'How a Web Page Works,' your browser will bring up the Web page containing the introduction to the HowStuffWorks article explaining Web pages. The advantage of text links in an affiliate program is they are ingrained in the content of your site and so don't look so much like advertisements. For a lot of affiliate sites, this is the most natural way to link to the merchant site.

• Banner links: These links appear as boxes, usually containing words and some sort of graphic element. They may be the best choice when you think a text link doesn't do enough to attract visitors.

• Search box: This type of link allows visitors to search an online database on another site. The results of the search are links to other pages on the site.

There are several ways affiliate programs use these links:

• Link to the home page: This is a straight-forward link to the merchant's home page. If an affiliate wants to introduce visitors to the merchant site in general, this is the best way to link.

• Product-specific link: If an affiliate Web site wants to sell only a specific product, they can link to that product's page on the merchant Web site. This makes things easier for the customer and simplifies the affiliate program process.

• Storefronts: If an affiliate Web site wants to expose visitors to a variety of products, they can link to a storefront. Prefabricated storefronts are maintained by the merchant Web site. The merchant can change what products are on display, but it keeps the URL the same so that the affiliate doesn't have to change any coding. Some merchants also maintain storefront pages the affiliate can customize, so that they display the most relevant products.

• Co-branding: In some affiliate programs, affiliates can maintain their Web site identity even after a customer links to the merchant Web site. The merchant Web site will handle all the sales, and will usually host the page, but will configure the page so that it appears as though it's still part of the affiliate Web site (by including the affiliate Web site's logo, for example). Unless the user examines the URL displayed by his browser, he probably won't even know he has linked to another site.

• Registration: An affiliate can link directly to a registration form on the merchant site. If a visitor would have to register to use the merchant's Web site, this link is a good time-saver.

Technology
So how do affiliate networks know when a visitor clicks from an affiliate to the merchant site? In most cases, the answer is that the visitor doesn't actually go directly to the merchant site, but instead to a page on the affiliate network site. The URL for the page contains several pieces of information, including:

• an identification number for the affiliate
• an identification number for the merchant
• the URL of the merchant site

When you click on the link, the network site records a hit on that particular URL, which tells them what affiliate sent a visitor to that merchant. It then immediately sends the visitor to the actual merchant site. This happens so quickly that you never see any hint of the network in your browser window. But if you move your pointer over a merchant link on an affiliate site you will notice that the first part of the URL your browser displays is for the network site and not for the merchant.

The network tracks sales using internet cookies containing these same identification numbers, so they know what affiliate referred the customer to the merchant.

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