Affiliate Marketing can be traced to the simple concept of revenue sharing, which has existed long before the internet even existed. However, in it's form today, Affiliate Marketing began just about four years after the internet was born, when CDNOW launched their “BuyWeb” program. This was basically a way of doing click-through purchasing at independent storefronts. It was a very successful model and business venture, launching e-commerce into the business mainstream. In fact, e-commerce companies like Amazon.com owe their success to Affiliate Marketing, and many businesses today include it in their business plans.
Basically, there are three types of systems used in Affiliate Marketing. The first is the classic CPC system (cost-per-click) which, due to click fraud, spamming and other unethical techniques, has become the less favorable model. CPC is when the affiliate is paid for every visit to the merchant's website that has come through the affiliate's website or efforts. It mostly takes the form of banner advertising, but can also be done through e-mail and other means.
Google's AdSense can serve as an example of the CPC model although, strictly speaking, because Google uses contextual advertising (the banners or adverts are related to the affiliate's website and content) it isn't really classified as CPC. Only 1% of the market use this model these days.
80% of the market use the CPS model, while 19% use the CPA model. These two are basically the same, as the affiliate is only paid a commission based on actual SALES (CPS) or ACTION (CPA) based on their efforts. For instance, if a visitor clicks on a banner on the affiliate's website that takes them to the merchant's website, the affiliate receives no commission unless the site visitor buys something, subscribes or gets involved in some way.
For this reason, many people confuse CPA and CPS for Multi-level marketing (MLM.) While many multi-tier programs within Multi-level marketing do use Affiliate Marketing, MLM is a type of business model whereas Affiliate Marketing is a type of marketing model. They are mutually exclusive.
Web 2.0 has brought a lot of influence into the way business is run, since it has made communication much easier. Word-of-mouth has always been the strongest form of advertising, and Affiliate Marketing is basically a word-of-mouth sort of system. This is one of the reasons why so many types of business and e-commerce use Affiliate Marketing – such as blogs, RSS feeds, comparison shopping sites, directories, loyalty sites, registration sites, rebate and promotion sites etc. There are also large CPA networks on the net, and many sites that use registration paths; in other words, if you register on one site, you automatically register on other sites too, and each site pays the other a form of commission.
Affiliate Marketing is low-risk, especially for the merchant but also for the affiliate. In fact, the CPA and CPS models can be classified as 'no-risk' if set up correctly. For this, and the reasons mentioned above, Affiliate Marketing has become an incredibly efficient and favorable way of doing marketing, and can be incredibly profitable for both the merchant and the affiliate.