A Brief History of Affiliate Marketing
As the story goes, affiliate marketing all started at a cocktail party. Jeff Bezos, CEO and founder of Amazon.com (www.amazon.com), was chatting with a party guest who wanted to sell books on her Web site. This got Bezos thinking. Why not have the woman link her site to Amazon’s and receive a commission on the books that she sold? Soon after, Amazon introduced the Amazon Associates Program. It was a simple idea. Amazon Associates would place banner or text links on their site (see Figure 1.2) 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.
Figure 1.2. Amazon.com affiliates place a small graphic image promoting Amazon’s bookstore on their Web page.
With that thought, Bezos created Amazon.com’s affiliate program in July 1996.
But Amazon wasn’t the first company to initiate an affiliate program. According to Brad Waller, VP of Affiliate and Business Development for Epage (www.ep.com), the affiliate program for Epage started in April 1996. As documented in “The CDNow Story: Rags to Riches on the Internet,” CDNow’s affiliate program predates Amazon’s by more than a year.
In November 1994, almost a full year before Amazon.com even launched its Web site, the venerable CDNow (www.cdnow.com) began 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 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 as a result of conversations with a music publisher called Geffen Records (www.geffen.com) in the fall of 1994. The management at Geffen Records wanted to sell its artists’ CDs directly from its site but didn’t 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. By linking Geffen Records to CDNow, the affiliate marketing format was born.
In this win-win advertising strategy, Geffen promoted and enabled the sale of its artists’ discs online and CDNow actually sold the discs. Following this program, CDNow formally introduced the concept as “buyweb” in the fall of 1994. At first, it was simply a technology that allowed Web site owners, referred to as members, to link directly to an artist’s page. Over time, the buyweb program grew. In 1994, CDNow had a dozen or so members, but no money changed hands.
By 1995 there were a few hundred affiliate members in the buyweb program. At that time, CDNow launched a revenue sharing program where it began to pay small commissions to Web site owners who used the technology. This gave Web sites the inducement they needed to join the program and provided them with an important opportunity to make money on the Internet.
CDNow created a methodology that enabled them to track purchases that online customers made and pay the referring Web sites 3% of the revenues from the discs that CDNow sold that were directly attributable to the links. The technology allowed CDNow to explicitly track when a visitor clicked through from say, the Geffen site, by encoding the Geffen name in the URL. Subsequently, the commission percentage was raised to 15%.
Participating Web sites were now able to add value for CDNow by recommending various compact discs to their site visitors that could be purchased on CDNow’s Web site. The links that such sites placed next to their music reviews gave their visitors the option of effortlessly purchasing the reviewed disc on the CDNow site. The participating Web sites received value in the form of the commission paid by CDNow each time a visitor clicked on the CDNow link and purchased the highlighted CD.
This was the first affiliate marketing program on the Net.
From CDNow and Amazon’s affiliate marketing programs came the beginnings of the affiliate programs we see today that have become a marketing staple of many online companies. Their popularity stems from the challenge of getting noticed among the hundreds of thousands of dot-coms on the Web. As the number of commercial Web sites continues to explode, the marketing problems of attracting targeted consumers to a particular Web site, making a sale, and then securing repeat visits, have become acute. Simple banner ads that just build and maintain a brand have become cost prohibitive, and their effectiveness has diminished over the years.
According to Forrester Research (www.forrester.com), banner ads had a click-through rate of 40% in 1994. By 1998, that percentage dropped to 1.5%. Today, banner ads return only a 0.5% click-through rate. Using banner ads on such sites as Yahoo! comes with few guarantees. There’s no guarantee of visitors to your site, no guarantee of click-through, and in some cases, no guarantee of impressions. The only guarantee is that you will receive an invoice for that media buy.
What companies needed was a hybrid marketing program that delivered sales and branding—not just simple impressions. And affiliate marketing, with its performance-based model, fits the bill admirably.