Affiliates: Thieves or Heroes? It Depends on the Source

Wikipedia has a long, detailed entry on affiliate marketing with an elaborate taxonomy for different types of affiliates. To my thinking there are really only three types, with the critical differentiator being how they generate traffic. This is the key question as it helps us think about which sales are incremental, and which cannibalized from other marketing efforts.
  1. User Benefit Sites: Affiliates that take a portion of the revenue share they collect from the retailer and either give it back to the user (like Ebates) or to some worthy cause (like SchoolPop and Upromise).
    • Traffic Source: Largely their traffic is their own. Loyal customers start their shopping on the affiliates sites to reap the benefits.
    • Traffic Volume: Small but not negligible.
    • Incremental orders?: Tough question. Certainly more so than most, but do loyal Acme customers buy from Acme because they participate in these programs, or would they buy Acme anyway without the discount if Acme didn't participate? A surveys of buyers might be revealing as to what fraction fall into each camp. Beware of "loyalty affiliates" who use downloaded applications to ensure that all future orders from those customers also pay the piper.
  2. Keyword Domain Affiliates: Affiliates who were savvy enough to snarf up great, keyword-rich domain names. Domain names like plasmatvs.com. Search Google for "plasma tvs" and they're the number 1 organic link. But they don't sell TVs they sell traffic to retailers. Many of these folks double dip: they take product feeds from the retailers in their network and collect commissions on sales, but also serve either Adwords ads or Adsense ads on their sites and collect revenue from that, too.
    • Traffic Source: Competitive natural search. They have a huge advantage algorithmically on the search phrase that matches their domain, so for that one phrase, they're king.
    • Traffic Volume: Varies with industry. If it's a high volume keyword it can be material. It's not a wide net, but if your market is heavily weighted to a handful of keywords, and an affiliate or group of affiliates have those domain names they can be big. However, this type of affiliate doesn't have much impact in a more highly distributed environment.
    • Incremental orders?: Absolutely. There is every reason to believe that if your listing and skus aren't on that affiliate's "shopping site" the customer will buy from a retailer who is there.
  3. Traffic Thieves: Affiliates who intercept traffic heading for a retailer, place their cookie and a coupon code on the customer's browser and sell the traffic back to the retailer. There are many mechanisms for engaging in this theft, PPC ads on your trademark are just one class. Natural search on your trademark, or your trademark + "coupons", or as Ryan Douglas points out: buying domain names that are misspellings and typos of your marks also accomplish the same objectives.
    • Traffic Source: Your brand, your other marketing efforts, friend referrals, etc.
    • Traffic Volume: Huge. Many folks have been trained to shop for what they want, then do a search for "[retailer name] coupons" to save money. The retailer loses money on the sale AND pays commission for the privilege. This is easy money for the affiliates, with almost no work and huge revenue potential.
    • Incremental Orders?: Very few. Arguably there are some folks who wouldn't buy without the discounts. We all know that offers do improve conversion rates. However, if giving offers to anyone who wants one is good business, why not put a "click here for discount" button on your website? Balance the cost of giving discounts to those who would have bought without a discount, plus the commission paid to the affiliates against the few incremental orders and this component will almost always be in the red, usually deeply in the red.
Two out of three affiliate models provide some value, unfortunately very few affiliates actually fall into the first two categories. The vast majority fall into the "Traffic Thieves" category for the simple reason that for the least amount of work they can make the most amount of money. In evaluating the profitability of an affiliate program it is NOT enough to simply study the "new customer" numbers. New customers who are looking for you by name aren't driven by affiliate programs, they're driven by loyal customer recommendations, other marketing efforts, and the power of your good name. Don't let anyone sell you that traffic; you've paid for it already! Last week I posted some tips for identifying traffic thieves in your affiliate program. I hope this simplified taxonomy catches on, feel free to spread it around :-) George
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