Affiliate Marketing on Search
Affiliate Marketing is a widespread method of online marketing, in which an affiliate gets compensated for every visitor, subscriber and/or customer he or she delivers to the merchant or website. Compensation may be made based on a preset value for each visit (Pay-per-click), registrant (Pay-per-lead), or a commission for each customer or sale (Pay-per-sale).
Search engines such as Google and Yahoo employ an auction style bidding system to work out the price of a word on a cost-per-click basis (CPC), so whenever a user clicks, the advertiser pays. When affiliates arbitrage for merchants, affiliates pay a CPC to the search engines, while the merchants pay a cost-per-acquisition (CPA) to affiliates for every sale that is made by their efforts. Thus, affiliates assume the risk for merchants by buying ads on a CPC basis, while being paid on a CPA basis. Additionally, affiliates spend a good amount of resources on testing and optimizing their ads, both of which the merchant does not necessarily have to deal with. By utilizing a legion of arbitrage affiliates, merchants significantly reduce the risks and costs for their online advertising and search engine campaigns.
In 2005, search engines such as Google and Yahoo!, implemented changes that have notably altered this game of arbitrage played by affiliates and merchants alike. In an attempt to eliminate duplicate listings and improve relevancy for their users, Google’s affiliate policy allows only one ad per search query for affiliates and parent companies sharing the same Web site address to display. Yahoo! Search Marketing employs “direct path” requirements where the website listing must be the advertisers own site.
Consequently, merchants seeking low cost channels of customer acquisition via arbitrage must now encourage their affiliates to be more creative in delivering customers. Affiliates must now allocate more resources and time in working with merchants, as well as building unique landing pages. Presumably, this may have a considerable effect on the low costs and time efficiency required to make arbitrage work, disconcerting the bottom line of arbitrage-based affiliate programs.
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