If you think affiliate marketing started on the internet, think again. O.k., sorry, you're right! We can't imagine a world without the internet either.
But seriously, refer-a-friend-programs existed before the web. Discounts for customers who recruited new clients were popular in certain industries; however, most schemes didn't last. One considerable challenge was the tracking of referrals, discounts, and the overall process.
Things weren't always as easy as they are with today's advanced tools. You can see how computers come in handy here and how the internet opened markets and opportunities. It took innovative minds to get to where we are today.
Online Affiliate Marketing Takes Its First Steps
The inventive spirit behind the first steps was William J. Tobin. Already in 1968, he was busy establishing start-up companies. The entrepreneur and inventor dabbled in different industries, such as travel, delivery services, and software. Optimizing their marketing concepts was his personal focal point.
Tobin used the Prodigy Network, one of the first online network services that connected users to news providers, bulletin boards, stock information, weather reports, game polls, and shopping. On Prodigy, he advertised his company PC Flowers & Gifts. When the shop started generating impressive revenue, he decided to contribute a portion back to the network.
The online affiliate concept was born. In 1989 Tobin filed a patent for online affiliate marketing.
How Amazon Changed the Online Landscape
Other companies followed with similar ideas, playing around with the software and technology capabilities, and trying out variations of the affiliate method.
One significant player was CDNow, a supplier of music, at the time mainly recorded on CDs. They offered other sites to link their content and earn a commission when this resulted in a purchase.
Then came Amazon! Jeff Bezos took the existing pattern and made a small but significant change. The Associate's Program of Amazon, launched in 1996, was available to the general public, not exclusively to companies. Anyone with the internet could now become an affiliate, and this inspired a whole new approach. It is also the reason why people often refer to Amazon as the pioneer of online affiliate marketing.
The Rise of the Affiliate Networks
Amazon introduced the model of paying a commission as a percentage of the sold product. In the beginning, the range of products was limited to books, videos, CDs, computer hardware, and software. It worked like a charm. The company had practically no competitors.
The same year LinkShare, the first affiliate network, was established and quickly expanded. The Japanese e-commerce giant Rakuten acquired the company in 2005 in what is considered the largest affiliate acquisition ever, at over $400 million.
In 1998 two additional significant players entered the field. Commission Junction and Clickbank came up with improved ideas for payment solutions. Networks enabled smaller companies to get a piece of the affiliate action without being part of Amazon.
Any merchant could pay a modest fee to become a member. They only had to provide affiliates with a link to use in the network. The affiliates were paid on a CPA basis. Commission Junction is believed to be the most successful affiliate network ever. It was later acquired by ValueClick for close to $60 million.
A New Millennium and a Bursting Bubble
Affiliate marketing does not exist in a vacuum. One reason for its initial success was the 'dot.com boom'. E-commerce started like a landslide, prompting investors and speculators to take their chances on every start-up with '.com' in their name.
What Made the Dotcom Bubble Burst?
Extensive investing led many companies to be entirely overvalued, a phenomenon called 'bubble' in the financial market. In March 2000, some large software companies with significant market influence placed huge sell orders and caused panic selling. This was the beginning, but not the only reason for the bubble to burst.
The frenzy around e-commerce cooled down, and affiliate marketing became less adventurous. A lot of the dubious activity disappeared, while sincere marketers prevailed in the online space. What came as a blow to e-commerce, turned out to have a stabilizing impact on the affiliate sector.
Gaining Respect Through Regulations
Simultaneously, regulators started paying attention to online advertising. The year the bubble burst was also the year the Federal Trade Commission issued first guidelines aimed at regulating the activity: "Dot.Com Disclosures: Information About Online Advertising".
The guidelines actually helped the industry gain respect because they strengthened its legitimacy. Until then, affiliate marketing was viewed as somewhat shady and often associated with questionable business sectors. Regulations made it acceptable in every branch of online commerce.
In 2008 an addition, which included bloggers, was published, causing even more transparency for everyone.
The Role of Technology
So far, we looked at the commercial aspect of affiliate marketing history. None of this could have materialized without the far-reaching technology developments during the concurrent years.
Calling the Server on the Telephone
Remember the Prodigy Network, the communication service on which William J. Tobin based his first affiliate program? A user had to dial in over a regular phone line to get access. Calling the local Prodigy server was free. The company then connected to the main servers in New York, which became costly.
The solution was - you guessed it - advertising. Prodigy turned into a virtual shopping mall. PC Flowers & Gifts jumped at the opportunity but was faced with an extremely slow system. To tackle this, they designed a system capable of running optimal functionality with minimal challenges for upload- and download speeds.
These were the sort of challenges advertisers faced before concepts like Google Adwords, and PPC were commonplace.
How Cookies Changed the Life of Every Affiliate
The introduction of cookies opened the door to a completely unknown level of interaction. If we believed the sun was the center of the world because we were aware only of our solar system, then this was the realization that we're part of the milky-way, and there was stuff out there we hadn't imagined.
These tiny documents collected fundamental information about the users' preferences and behavior to make browsing smoother. They were stored on the users' browser and accessible only from the website that installed the particular cookie.
Next Level: Third-Party-Cookies
As the amount of data collected by websites outgrew the capacity of cookies, developers had to come up with something new. And they did. Rather than using the cookie to store, they used it to identify a user and store the information on their own system.
From there to third-party cookies was a small step. Third-party cookies are the type used in affiliate marketing. The ad section of a website is practically part of a different website embedded into it. The vendor installs a cookie to identify a visitor using ad banners on someone else's site – the affiliate.
In an affiliate network, vendors and affiliates come together to create beneficial connections for both. This ensures maximum exposure for the vendor and maximum opportunities for the affiliate.
APIs for Connectivity
Cookies were the cornerstone for tracking, which has become the scaffolding for any affiliate marketing success. Now here's a new challenge: connecting! Networks brought the players together, but each came with their own tools. How do you get all the different systems to communicate with each other: vendor platforms, CRMs, tracking software, affiliate network, blog hosting sites, e-mail services, payment service providers, and so on.
That's the job of the API – Application Programming Interface. Each application has its own language or at least a unique dialect. APIs sync information between software applications and make sure they communicate effectively.
APIs Make the Web Go Round
Most activities we carry out today over the internet are impossible without APIs. Every time a website or service displays data obtained from a different source, an API is at work. Today, you move smoothly from program to program, and you aren't even aware you're doing it.
Large vendors release APIs and make them readily available to allow affiliates to hook up to their product information, special offers, etc. By doing so, they ensure that information is always current and relevant, no matter where it is displayed. Vendors can make changes on their websites as frequently as they want. With APIs in place, the data automatically updates in all connected affiliate sites.