Affiliate Marketing Business Models. Are they still profitable?

Within the whole world of business both online and offline ones, there has been around a concept to make any entrepreneurship idea come to life, survive, thrive, and finally be successful. That is the business model concept.

Long before the affiliate marketing business models or any other kind of proposal for online businesses there were a lot of offline strategies such as the ‘bait and hook’ model (aka as razor and blades model) at the beginning of the 20th century. Then other business models introduced later by companies such as MacDonald’s or Toyota during the ’50s and ’60s, Blockbuster or Dell during ’80s or Amazon, Netflix or Starbucks during the ’90s just to name a few.

Without entering in sophisticated explanations, suffice it to say that a business model is a way how a company either small or big organizes itself to generate, manage and implement an idea making it profitable and what is the role of each one of those phases in the final earnings. There is an excellent amount of literature on this topic you can consult about.

Types of Business Models

Although business models could be outlined in as many schemes as creative and productive minds within an organization, some typical descriptions have been used extensively around the world. We are not going to list them all here nor describing in detail, but only show some key features that all of them have in common.

In a virtual flowchart, we can depict or imagine at least a few constant actors of every model either for its required presence or its intentional absence. Those actors are:

1. The individual, team or organization that generates one or more ideas (creator, inventor)
2. The individual, team or organization that make those ideas become a reality either physical or virtual as a final product (producer, merchant, advertiser, brand)
3. The final product or service itself
4. The individual, team or organization that offer or distribute that product to the world either by donation or sell (distributor, intermediary, broker, affiliate)
5. The individual, team or organization that take that offer for free or buying it (customer, client, buyer)

With those actors identified, we can talk about some examples of business models, like the one we mentioned above ‘bait and hook‘ or also known as ‘razor and blades.‘ In this model, the process numbered from 1 to 5 usually occurs one time from generating the idea of a razor, printer or a device (toy, lamp, remote control, etc.) using batteries to the people buying those items. Up to this point, the only profit has come from the product sold, which probably pays to the numbers 1, 2, and 4. However, a need is generated for supplies without which the number 3 of the first round, that is the final product couldn’t work anymore. This is the phase of the bait or razor.

In the next cycle, that we can call it the “supplies cycle,” actor #1 won’t be needed because the idea has been already generated. The actor #2 now is another team producing the supplies (blades, ink or batteries, etc.), and the #3 is the final supplies ready to be sold. Actor number for could be the same from the first cycle or a different one who now distribute the supplies. Actor #5 is expected to be the same from the first cycle too, is the final consumer who need to get those supplies (blades, ink or batteries) for their final products from the first cycle (razor, printer, toy, lamp, remote control, etc.) work.

As of the third cycle, the previous cycle could be repeated on and on and on, as long as the final consumer (actor #5) require the supplies. This cycle becomes the primary source of income for the whole process for all the involved actors.

Taking these same essential elements as lego pieces, we can build other business models. Let’s try with a few of them.

In the ‘Bricks and Clicks‘ business model, the offer of a product and even the purchase of it can occur online, while the pick up for the final customer can occur offline. In other words, process #5 is split into two parts, the first one of selling and the second one of delivering.

The ‘Cutting out the middleman‘ model eliminates de need for an actor #4 (the distribution) or include it in the functions carried out for #2 (the producer) to sell directly to the final customer, within its facilities.

The ‘Direct sales‘ model is a variation of the previous one. While the distribution could be done for the producer or the traditional distribution channels, the delivery occurs at the homes or jobs of the final customer.

In the ‘Freemium model,’ there is a first cycle where the final consumer (#5) gets the product or service (#4) for free. Sometimes the product or service obtained is entirely functional at the first level or stage and could work for some people this way indefinitely. Other times the product or service received is just partially functional. In both cases, there would be a need for an upgrade which is paid, and it’s when the business really starts for the creator (#1), the producer (#2) and the distributor (#4).

We can continue describing a lot more business model examples like the Franchise, Pay What You Can (PWYC), Auction, Multi-level marketing, Online content, Pyramid scheme, Subscription, etc., but is not the purpose of this post to be exhaustive about this point.

The Affiliate Marketing Business Models

Using the same elements of the previous section, let’s outline how the affiliate marketing business models look like. In this model, it isn’t necessarily relevant if the creator or generator of ideas (#1) and the producer (#2) are the same or different individuals or teams.

What is important is to point out here is that the offering or advertising part used to be split at least in two. One of those parts being the one where the advertiser sells through its own channels. The other one where the same advertiser leverage the capabilities of third parties to promote the products or services without being formal employees or distributors. Instead, they affiliates (#3) whom role starts by promoting through their channels and finishes when they earn a commission for each sale or action accomplished by the final consumer (#5), as many times as possible or agreed to depend on the terms of operation.

We’ve used the plural form in this case ‘business models’ instead of the singular one because there are variations which can represent important differences to some of the actors involved in the process in terms of expenditure and income.

Some of those variations have been introduced by the giant of affiliate marketing: Amazon. In a classical model you are relatively free to make the promotion of your advertiser partner in the way you like, and so still work many advertisers however Amazon imposes several restrictions about the channel you can show its offers, in addition, to disclose in an overt form in your website the relationship you have with them.

Another Amazon affiliate program’s particularity is related to the commissions. Until the beginning of 2017, Amazon would pay you commissions based on the volume of referrals you would send to their site every month. As of March 1, 2017, they changed this policy to pay you now based on the category to which each one of the items sold would pertain. Not to mention that the highest commissions paid by Amazon don’t go beyond 10%.

Affiliate marketing model could combine with other business models, for instance, Freemium. So you can promote as an affiliate a free product or service which won’t generate for you any revenue at least at first, but then if your referral later decides to upgrade, this action will be credited to you for getting a commission which might be monthly or yearly.

The way in what an affiliate push an offer is another variation of the typical affiliate marketing business model. One can simply add affiliate link within a post in social media or over one of the side columns of a website, while another affiliate can write informative content about a specific topic to create a contextual background to lead the visitors to a strategically located link.

So as you see, although affiliate marketing is a business model itself, it can have so many variations that each one of them could be considered as a different business model, and it is crucial that you are aware of such differences at the time of choosing the right one for you.

Learn how affiliate marketing can help you create significant long-term revenue through your own website. Go here for more information.

What Makes a Business Profitable?

What does ‘profitable’ means to you? As strange as it may seem, perhaps for some people it means having loose change in their pockets to buy an extra cup of coffee while for other would mean having enough to pay the bills, the tuition of their children, the mortgage on the house at the end of the month, or for merely saving it regularly.

To other people, profitable could mean having enough money to invest in dream projects, yet for too many others could imply having a lot to spend it shopping on luxury stores or traveling around the world

So again, what does profitable means to you? The answer is essential because it will determine the plan that you are going to carry out and the business model most suitable for your situation.

Some models would require a lot of work to start giving some significant dividends, but after consolidation will represent a steady source of income. Amazon is an excellent example of it. As we have mentioned, its commissions are not so high, in fact, they are one of the lowest of the market. However, if you build a website based on valued and informative content, it will render over time the opportunity to capitalize many Amazon offers, which in volume could make a high income.

In contrast, if an affiliate is not so inclined to write content or to hire someone that does it for her/him and has the budget to pay for traffic maybe her/him want to choose another advertiser who pays high commissions which compensate the initial investment.

In the middle, there is a broad spectrum of modalities to fulfill the needs of everyone, such as the initial goals and dreams, the experience, the previous knowledge, the available time, the willingness to work hard, the expected income, etc.

The Dynamics of the Internet in Today’s World

We are probably already far from those early years of the internet when only a small percentage of the world’s population were users and this percentage doubled each year. We are far from the exploding phase of Internet when those 16 million users which represented a 0.4% of world population at December, 1995 converted into 36 million users 12 month later.

Today with 4.3 billion users (56.8% of world population) the growth curve seems to be getting slower and perhaps in a few years we will see it reach a plateau where the majority of the world population is connected. But before that happens we have to take into account at least two facts regarding the possibility to thrive by using affiliate marketing as still profitable business model.

1. There still exist massive regions of the world without internet coverage. Those 4.3 billion users only represent a little more of half the world population. In other words there are still 3.4 billion people left to become users.

2. Internet world it isn’t just about volume but interaction with each other. It’s about communication, ubiquity, portability, etc. The evolution of the web is an ongoing process where different concepts and applications are under discussion giving rise to terms such as Web 3.0, 4.0 and maybe higher. We left behind the Web of Content, the Web of Communication and the Web of Context to enter the Web of Things and project towards the Web of Thoughts.

A Well-known and (still) Functional Model for a New Era

What these two facts could imply for us is that new ideas will be generated, and new producers will be make them reality, probably more and more in the virtual real as we are experiencing right now with each new app available. Those innovations will need targeted markets to be promoted in. New audiences will ask for new applications and the creators and producers will be in need for people who distribute their new ideas. There will be the future opportunities for affiliate marketing.