My name is Chip and I'm an affiliate addict. Last week I made $11.20 from Amazon.com, $4 from MyCoupons, $1.50 from Catalog Link, $9 from Cool Savings, $11 from the Playboy Store and 80 cents from iCreditReport. If you click on any of these links and purchase something, I will make more money next week, which is my goal. You also will become what addiction specialists call an enabler. Thank you and please come again.
My troubles began where most affiliate addictions begin, at the sign-up page for Amazon's Associate Program. There, under the headline "Open Your Own Online Store Today!" I was invited to apply to sell the bookseller's inventory through my site. You provide your mailing address and site URL, and unless you're running a porn palace, a hate group or amazonsucks.com, an approval soon arrives by e-mail, with instructions on how to set up links and banner ads. Since the day that e-mail arrived in my box, I have signed on willy-nilly to dozens of similar programs to sell everything from music to magazines to Pamela Anderson pool cues. In reality, I don't sell anything. I simply direct people with disposable income to online stores who take and fill the orders. The merchants then pay me a percentage of each sale or a small set fee for playing rainmaker.
The merchants track my earnings with codes embedded in the links or ads they provide for my site. For instance, the links to Amazon at my personal site each conclude with my account name, "thebookofzines." That tells the bookseller where you are coming from. If you purchase books, Amazon credits me with 5 percent to 15 percent of the price of each title. It costs you nothing, and Amazon is happy to pay me for the introduction. Typically, I earn about $10 a week through my Amazon links. I know this because each week the company e-mails me a report detailing which books have been sold through my site. It then tallies my commission and, every three months, sends me a check. Other sites total my commissions daily or weekly and post them on a
password-protected Web page, where I can check them once a week or once an
hour. And I do, compulsively. It's like watching a stock that never goes down.
Since Amazon launched the affiliate revolution in July 1996, more than 320,000 people have signed on to boost its bottom line, and their own. Amazon is tight-lipped about how much of its revenue comes through affiliates, but one estimate puts it at between 5 percent and 15 percent. The company brought in $600 million last year, so affiliate revenues could range from $30 million to $90 million annually, and (assuming a 10 percent
average commission) affiliate payouts from $3 million to $9 million. I read all these figures in Evan Schwartz's book "Digital Darwinism" and later had this dream: Every person who purchased books at Amazon for an entire year came through my site. Within a few weeks, Bill Gates and I were competing to see who had a bigger house.
OK, that's a little far-fetched -- but not as far as you may think. Last year, the top affiliate at the Internet personals site One & Only -- a guy identified only as Jeff from New Jersey -- pulled in $11,266.90. I know this because unlike most sites, One & Only posts the revenues of its top earners to encourage other webmasters to sign on. Learning that some guy earned $11,000 by posting a few links is really, really not healthy for me (maybe it was his only income). Nor was it healthy to spend time exploring a breathless site like that created by Declan Dunn, author of a $97 book and $40 audio tape set called "Winning the Affiliate Game," which he sells using an affiliate program. Dunn promises "obscene" profits (what other kind are there?) without working hard at all. His site reads like a late-night infomercial, but he obviously knows his audience. Who wouldn't be intrigued by the happy customer who says he created a cybermall of affiliate links that brought in "$35,000 our first month, $60,000 our second month and $100,000 our third month"!? As if to drive the point home, the testimonial is accompanied by a photograph of the obscenely rich webmaster and his wife on their living room couch, demonstrating the art of doing nothing, while presumably, in the background, the cash rolls in.
The promise of easy money is what drives webmasters to sign up in droves with the hungry merchants who have followed Amazon's lead. It sure hooked me. Refer-It, a directory of affiliate programs, currently lists more than 860, and those are just the ones that webmaster James Marciano doesn't consider "schlocky" or outright scams. You can partner to sell T-shirts, home videos, construction contracts, horoscopes, the "Hooked on Phonics" reading program, cameras, stock newsletters, flowers, wine, pornography, computers, vitamins, office supplies, furniture, dog toys, bikes, Y2K kits and filtration systems for the coming "water crisis." (The latter may be the first affiliate program to have a celebrity spokesman -- Pat Boone! You know that water is clean.) Marciano says he receives about 50 applications per week from merchants looking for affiliates. Network sites such as LinkShare, beFree and Direct Leads make it even easier for webmasters to sign up: Enter your mailing address and site address and click, click, click, join dozens of programs in a matter of minutes. For the affiliate addict, this is the equivalent of giving a smoker free cigarettes.
I know why I joined so many affiliate programs -- for the money -- but what's in it for Amazon or any other online business? The simple answer is that an affiliate program has the potential to create an instant, low-cost sales and marketing force. But the market research firm Jupiter Communications has calculated that affiliate sales last year accounted for 11 percent of the $5.7 billion in online consumer transactions (excluding business-to-business and auto sales). By 2002, that figure is expected to grow to 24 percent of $37.5 billion. That's a lot of dough. Presumably it must pain many online merchants, who are mostly profitless, to rebate a quarter of their revenues.
I phoned Evan Schwartz, who has his own affiliate program to promote "Digital Darwinism," (I joined -- couldn't help it), to find out why affiliate programs are so popular. He explained that what pains merchants more than sharing their profits after a sale is sharing their profits without a sale. Using banner ads, which require payment in advance and don't guarantee traffic or sales, online merchants spend an average of $30 or more to attract each new customer. (Online marketers who use traditional media, such as television, might pay more than $100 to acquire a new customer.) Amazon, by contrast, might pay $2 to $5 in commission to an affiliate for a first-time sale, plus the cost of administering the program, much of which is automated. This new customer isn't likely to use the affiliate link for his or her next purchase; he'll go directly to the bookseller's site. So the commission is likely to be a one-time fee. At CDNow, about 80 percent of customers acquired through affiliates return directly to the music retailer for subsequent purchases.
Today, besides Amazon, there are 22 bookstores listed in the Refer-It directory. The competition to sign up high-volume, targeted Web sites to feed them new customers has forced merchants to be more generous, and aggressive. A week after I signed up for a fledgling affiliate network called PlugInGo, a representative phoned me -- phoned me! -- to see if I had any questions. Standard commissions have crept up from single to double digits, and set fees are rising as well (some subscription businesses, such as an advertising-supported e-zine or grocery coupon service, will pay a commission for each new subscriber that might range from 25 cents to $1.50. Others pay from a few pennies to as much as 50 cents for each click-through). In many cases, commissions are now being applied to a customer's entire cart of purchases rather than just the one item they left your site to find (Amazon went this route after Barnes & Noble forced its hand). Direct Leads has started a "super affiliate" program in which you earn commissions based on the earnings of each webmaster you recruit to join the network.
And, in the latest competitive twist, a few merchants such as Art.com and One & Only personals offer a cut on everything a new customer spends now and in the future. It's an affiliate annuity. If you're affiliated with a lonely hearts service, Schwartz quips, it's as easy as attracting to your site a lot of losers who can never find dates.
Despite the rapid growth (affiliate merchants and networks have organized conventions on each coast this year to talk among themselves), Refer-It's Marciano, Schwartz and others believe that the model is still green, and that more innovations are coming. Merchants are just beginning to understand that a few thousand dodos are not nearly as effective as a dozen hawks. Jupiter estimates that 15 percent of affiliates earn about 85 percent of the commissions; Marciano believes it's more like 2 percent that earn 98 percent. Jupiter says that in late 1998, about 30 percent of CDNow affiliates weren't providing even a single click-through, let alone sales.
The reality of the situation is that for the vast majority of affiliates, making a profit (defined by many as earning more than they're paying out in online fees) is a pipe dream. They just don't have the traffic. A survey by Refer-it found that the median annual affiliate earnings was $50. And of the 120,000 CDNow affiliates in late 1998, only 100 made more than about $30 a month.
If you're not making significant cash, affiliate links may be doing more harm than good. "People see becoming an affiliate as a no-lose proposition," Schwartz says. "But if a surfer's attention is the most precious commodity online, those links can be expensive diversions. It's hard enough to get people to come to your Web site and now you're sending them somewhere else for 50 cents. You may have squandered their attention for good."
There are other pitfalls that put thorns on the rose. Though many programs cut checks monthly or quarterly, in most you won't see any cash until you've reached a minimum level of commissions, typically $25 or $50. One contract I read included a clause that reneged on commissions if you left the program before earning the minimum payment. You also risk, if you sign up with less established programs, losing your commission when the company fails, or disbands its program without cashing out, or changes its operating agreement. And a few large merchants, such as Amazon, forbid affiliates from buying books or CDs through their own links. (Though most merchants aren't crazy about having affiliates that join only to get rebates on their own purchases, they write it off as a loyalty program. You don't even need a Web site these days -- Barnes and Noble has launched an affiliate program for the e-mail-bound, although it too forbids buying through your own links.)
What I learned from the pros was not to shove my precious visitors around without giving careful thought to the long-term consequences. To make real money, a webmaster needs to build a dynamite site and distinguish it from the ever-expanding universe of cookie-cutter pages. The affiliates that do well are those devoted to a niche -- a certain movie or band, gardening, fly fishing, divorce -- who choose their partners carefully. Their revenue links are seamless. "If you run a site such as Quicken.com, then of course you're going to have a page of books about personal finance," Schwartz says. "In context, it's a perfect idea to become an affiliate. But if you're Joe's Mall and all you have are 37 affiliate links and that's your site, that speaks for itself."
Although I instinctively joined about a dozen
affiliate programs while writing this story, speaking to Schwartz and other
affiliate gurus helped
ease the symptoms of my addiction. No longer do I check my online revenue
reports every day (it's every other day now), and recently I consolidated
some of the links on my video reviews. I like to boast that the commissions
I earn cost me nothing. But there's a hidden cost: The tens of hours I
spend to promote and update my site to maintain the traffic necessary to
earn even meager commissions. Taking that into account, I've earned less
than 5 cents an hour. That's not easy money.
Not that I'm giving it up -- I've already invested the time -- just toning
it down. The experts convinced me to not to spread my loyalties thin.
Meanwhile, new webmasters continue to sign on, pushing the affiliate
revolution toward that day when it reaches a critical mass. Every site will
be a storefront; everyone will be an affiliate of someone else. You buy
mine, I buy yours -- it all evens out. I can just see this story, told to
me by Marciano of Refer-It, repeating itself: He wanted to send flowers to
his girlfriend, so he placed an order with Proflowers.com. "I had signed up as an
affiliate, so I got a small commission on the purchase," Marciano says.
"It's like that commercial -- is it love or is it the miles?" It's a match
made in affiliate heaven, given what Marciano says happened next: "My
girlfriend phoned to thank me for the flowers, then asked if next time I
wouldn't mind buying them through 4charity.com, a site she
runs to raise money for charity. She wanted the flowers, and the
commission."
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