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Confusing Reseller and Affiliate Models

One of the venerable email lists I’m subscribed to, Adam Audette LED Digest, has had a recent discussion about affiliate marketing that, while not exactly illuminating to veterens, raises interesting issues about the different metaphors of affiliate marketing. The initial post (requesting general information about affiliate marketing strategies in contrast to pay-per-click strategies) produced some cursory responses from Linda Buquet and Peter Warnock and then Brad Waller. But yesterday’s post from R. Gortatowsky forced me to reply to that list for the first time in years. Why? Because Mr. Gortatowsky (of POS software site “The Software Society”) has his resellers mixed in with his affiliates in way that demonstrates how muddled the revenue sharing model space has become.

Some of his post is, in my humble opinion, downright wrong — including a belief that an “internet tax” could force affiliates as well as merchants to have to charge tax to a consumer, resulting in “double taxation” and an assertation that “any affiliate past / present is virtually guaranteed an audit within the next 3-5 years as considerable issues of accounting on all sides are in question.” He goes on to argue that affiliate marketing is going to replaced by customer incentives (what I would term “loyalty marketing”) where the customer replaces the affiliate and earns store credit.

As an example, he cited eBay:

“The flat rate sales tax
pretty much kills eBay for example as its been known. eBay now has been pushing eBay Business, the new venue that phases the old away into history. The businesses using affiliate programs are working on models now that reward the buyer not some driving site / entity. This is the replacement of the current affiliate models.”

Of course, this flies in the face of eBay’s recent announcement that they are expanding their affiliate program:

“eBay’s Affiliate Program enables entrepreneurial individuals and organizations to earn money by driving new users and bids to the eBay marketplace, with the top 50 affiliates earning an average of over $1 million per year in commissions. Most of the top 50 affiliates are entrepreneurial teams of three to five developers committed to driving traffic to eBay in technologically-savvy and creative ways.”

What seems clear, though, is that confusion abounds (even among smart practitioners of revenue sharing) about how these multiple models fit together. I think Mr. Gortatowsky has confused three models of revenue sharing that actually have very different (and synergistic) benefits:

1. Affiliate Marketing - performance marketing that rewards publisher with commissions only for sales that are produced, aimed by merchants most typically at new customer acquisition

2. POS/Reseller/Drop Ship - an inventory-less distribution system that allows small online merchants to stock products for sale, aimed by manufacturers most typically at expanding their sales networks

3. Loyalty Marketing - a system by which merchants, affiliates or resellers encourage repeat purchasing by an existing customer as well as “word of mouth” referral to their friends

Many of the most successful affiliates are loyalty marketers (offering a percentage of their commissions as rebates or donations to worthy causes), and most affiliate managers treat their networks as customer acquisition that works alongside marketing efforts to their existing customer base. The fact that all three are flavors of online revenue sharing doesn’t mean they should be grouped together, as the issues related to each (such as the sales tax issue he cited) are frequently very different.

I suspect I won’t be the only one to reappear from the woodwork of LED-Digest from Mr. Gortatowsky’s post, and I anticipate a vigorous debate emerging on that list (something that I hope some of the knowledgeable affiliate and drop ship marketers here at ReveNews might pick up on as well.)

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