Maybe affiliate marketing isn’t such a good idea after all?

I’m here in humid Orlando, Florida for the Affiliate Summit, along with over a thousand other people. I’ll be giving a presentation about blogging, talking both about how it can help companies with affiliate programs connect with their affiliates and how individual affiliates can try to stand out from the pack by blogging about the products or services for which they’re affiliates.
But one topic I am also going to raise that I believe is worth some serious discussion in the blogosphere is whether there’s ever any reason for someone to actually become an affiliate.

Ostensibly the answer’s easy: you can link to things and make a buck when someone follows your link and buys that product or service. I do it myself when I use an Amazon affiliate link to point to a book I’m citing, for example. I don’t really make any money from these links, frankly, maybe $30/month total, but at least when you read about a book, you can easily click on it and buy a copy if you’re so inclined.
I didn’t need to go to business school to learn, however, that real business is built around sustainable differentiators, about having a product or service that’s different and better than the competition. Not just today, but over time as the industry evolves and as competitors are inspired by your success. Think of the dual evolution of Windows and Mac OS X for a splendid example.
A good business, therefore, has to be different than its competitors, and that’s where I think there’s a fundamental flaw in the world of affiliate marketing: if you and I both sign up to be affiliates for, say, American Express, then we are trapped selling the same products for the same price, probably using the same creatives, banners, and graphics.
In that sort of space, how can you possibly differentiate?
Think of it in retail terms: how could you ever hope to compete with the local supermarket if you carried the same products at the same price. Would you organize them differently in the building? Have different hours of business? Have personal shoppers to aid people in finding what they seek?
I’m not arguing against affiliate programs completely, of course, otherwise I wouldn’t be here at the Affiliate Summit at all, but I am curious how many successful affiliates consider their efforts to be a true business, versus just an opportunity to hawk wares until that market dries up and it’s time to move to another? This is doubly important if your affiliate scheme is to use something like Google AdWords as your primary channel for visibility, what some folk like to call an arbitrage play. You make $10,000 in affiliate sales, but paid $9,350 in advertising to get it.
Just to end this on a positive note, I think that the best place to hook affiliate marketing into your efforts is when the affiliate products or services are directly related to your existing Web site or online business. If I sold ebooks on working with gadgets, for example (which I will be doing in just a few days at my Ask Dave Taylor site), it would be quite logical to include “buy this gadget” links on those pages, and if they made me a few $$ on each sale, well, that’s just a smart way of monetizing my existing traffic.
Are you an affiliate of one or more companies? How’s it going for you, and do you consider it a proper business unto itself, or an adjunct to your existing efforts that help you monetize your traffic?

11 comments on “Maybe affiliate marketing isn’t such a good idea after all?

  1. Hmm, interesting post, Dave. I’d love to discuss it more when I get down to Orlando.
    A few comments:
    – Not every business has or has to have sustainable differentiators, IMO — some businesses take advantage of a window of opportunity. They may not make the cover of Fortune or be around for our great grandkids to enjoy but they are still different (and valid) approaches to business.
    – Let’s say you and I “both sign up to be affiliates for, say, American Express, then we are trapped selling the same products for the same price, probably using the same creatives, banners, and graphics.” How to differentiate? A million, million ways. Maybe I have a website for people with poor credit histories helping them get back on track and the AMEX Blue Card has a special program that I promote where you can get a guaranteed card if you deposit $200. You promote the AMEX Gold Business Card to executive frequent flyers in your ratings of the best cards that earn rewards points. Both of us do an amazing job of preselling and have industry-leading conversion rates (and use text links, not the generic AMEX banners). What’s the problem? Anybody that gets stuck in the “same product, same banners” mindset is DOA anyway and shouldn’t be an affiliate.
    – I didn’t get your Google Adwords example. So one person makes $10,000 in affiliate sales, but paid $9,350 in advertising to get it. Let’s say they do that each day. Are there any investors on Wall Street who would be interested in returns of 6.9% *per day* for 365 days a year? Any hedge funds? Are there any people in the United States who would like to personally make $650 profit per day ($237K/yr)? How is that not a valid business? Now if you are advertising for one merchant and have loaded one keyword — their trademark — you may not have a long run at it. But what if you are doing a Long Tail play and bidding on tens of thousands of keywords the merchant hasn’t even thought of or explored? To me, it’s a valid business that has carved out a profitable niche — how is that bad?
    I think affiliate marketing is awesome but it takes lots of creativity and good business sense. Slapping a few links on a web page isn’t
    very innovative, granted.
    I’m not sure I agree with the premise that “real businesses” are built around sustainable differentiators…and the rest are…what, just
    crude wannabe hacks? I would say real businesses are ones that serve customers in some way and make money. The window of opportunity may be 2 hours (a kid selling t-shirts in a parking lot after a concert), 2 months or 20 years but anyone out there in the marketplace serving customers and makin’ dough (legally) has a real business. Jim Collins may not devote his next book or lecture to the t-shirt guy and the Harvard Business School may not write a case study on him, but God bless the kid’s drive and ambition.

  2. Dave,
    I am really confused by this post of yours. It sounds like you are fighting with yourself. You seem to beat up on folks who are affiliates, but yet you are one. Heck, you sell lots of things through affiliate links on your different website properties.
    My take is different. I feel that the word *affiliate* is just the current belle-of-the-ball buzzword for what the traditional business community for years has called two or three-step distribution.
    I used to buy from affilates for years when I was still building houses. I didn’t know they were affiliates, but I guess they were.
    For example, I could go to Hyde Park Lumber and get the same set of wood chisels made by Stanley Tool as the ones sold at Queen City Lumber Company. The display at Queen City was closer to the sales counter and clean, whereas the crude pegboard display at Hyde Park Lumber was covered with dust, and set over in a corner.
    So here were two companies selling the same product, but one sold many more sets of chisels than the other. Was it a stupid thing to do? No. Neither lumber company had a steel forge, nor the interest to manufacture chisels. But they had customers who NEEDED chisels. So why not sell them?
    That is all affilaites do. They solve problems. My online experience has taught me that people want their problems solved as quickly and cost-efficiently as possible. Don’t you?
    Affiliate marketing is absolutely a sustainable business, and one where people can find both great wealth and satisfaction. What’s more, these people – through creative sales approaches and competitive pricing where allowed – can help regular people save time and money. I would say these types of people add all sorts of value to the human equation.

  3. You do it by finding your way to be different. Different packaging. Different attitude. I go to the supermarket with the crusty old guy behind the meat counter who knows what you want. Yes, there are windows of opportunity and you can seize the moment, but when the moment passes you have to be different in a way that is you and a way that works. There’s a lot of great wine out there – how does one small winery make it and another doesn’t?

  4. Great responses, guys! I think it would be valuable for me to clarify that I’m talking more about people who are relative newbies to the online business world, especially the affiliate marketing world, not savvy long-time business people like yourselves.
    Dan, for example, you have indeed figured out how to manage the extraordinary risk associated with an arbitrage-based business so that you do have a company that operates on a razor-thin line of opportunity. But just as day trading is easy when the market’s going up and incredibly difficult when it’s in a more typical state, so using AdWords and affiliate programs to build a business is not without its own massive risk. Doable, but certainly not for the average online businessperson.
    And, Tim, I agree completely with your ideas about solving problems quickly and efficiently, but you’re arguing exactly my point: you can’t just “randomly add new affiliate lines to your online store” but instead need to already have a focus and context within which you can fit appropriate affiliate products and services.
    I am not against affiliate marketing from an affiliate’s perspective, I’m just suggesting that if you are someone who checks the latest affiliate promotions at Commission Junction every week to find stuff to promote, maybe you don’t really have a business, per se, and maybe you cant’ be successful in the long run…

  5. True, you don’t want to be checking CJ for new creative every day. Banner ads? Canned creative? Fuggetaboutit!
    To be successful in this crazy buziness, you’ll need to think about how to weave contextual links — photos and text — into your editorial pages without being a blatant linkslut. Learn to dirty dance on the line between church and state.
    Be your niche. Differentiation happens on an editorial level. The marketplace supports both Time and Newsweek … how do their audiences differ? (Just don’t ask me, ’cause I don’t read ’em.)

  6. Sustainable differentiation is very much a VC term – where you accept strong growth businesses only. A sterile, rational, black-hat approach.
    For a true business, the term you want is “value proposition”. A value added service; regardless of whether it is unique or not. Then let supply and demand set whether you survive or not. Often a business is not unique but demand exceeds supply for that service.
    For affiliate network publishers, it is all about the context in which they advertise the products. About helping the client make an informed choice…plenty of value-added service to be provided there.

  7. As someone who has dabbled with affiliate programs and sites myself, I do believe there is little to defend in terms of value. For those who can make decent money by cutting out the middle man, then I say more power to them.

  8. I think affiliates are basically commissioned
    (only) salespeople. Which have been around for years of course.
    Except successful web affiliates have to differentiate themselves much better than an average joe selling cars or vaccuum cleaners.

  9. Hey Dave �
    Just want to throw my two cents in.
    As someone who works directly with some of the more successful affiliates out there I have to say that being an affiliate is most certainly a business. Yes, they might be selling the same stuff as other affiliates, but the product itself is only one way you can differentiate yourself from competitors. Grocery stores all basically sell the same stuff, but they are different because of location, layout, size, etc. It works the same for affiliate web sites.
    Also, because of the advancement in search and PPC algorithms (mainly Google�s), successful affiliates are really having to build high quality web sites. Heck, some of our affiliate�s sites rival ours in design, quality, and content. Building sites like these take talent, and many affiliates are hiring programmers, copywriters, designers to work for them. I don�t know about you but that sounds an awful lot like a business to me.
    When you say �I think that the best place to hook affiliate marketing into your efforts is when the affiliate products or services are directly related to your existing Web site or online business� I think you are missing something. You need to understand that most successful affiliates choose a product and wrap a high quality web site around it. Basically the opposite of what you are promoting, but when done well, you really get the same end result.
    I will admit there are a lot of affiliate garbage sites out there � but I would argue that AdSense creates many more garbage sites than affiliate programs do. And, as you shared with me, that�s what pays your mortgage, so I won�t go there. 🙂
    Alright � that was my two pennies � hopefully some of our affiliates will come over and give you a piece of their minds too.
    Take it easy.

  10. Good point! We all know those make-money -at-home programs stating “Make 20000 a month while you sleep”, with screenshots showing great results at ClickBank. Even a child can make 20000 a month, if he throws 30000 in PPC costs. When i see these ads, i always think about the poor people that will be suckered in and lose money.
    And to Dan Murray: true that making 6.5% of $10000 each day is awesome – but this requires so much input: a few small changes in your competitors’ bids and you will find yourself spending $10650 for the same $10000 income.

  11. I agree with promoting affiliate programs that is relative to your business. This is one way for good branding and it can gain you credibility and reputation.
    If you are an affiliate marketer who would market anything that comes to mind without correlation to your own product, you will look like a website full of unnecessary advertisements. This will not look good for your business.

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