Affiliate programs are the means and tools wherein online merchants generate profit. These programs are hosted by online merchants but advertised by web publishers. Affiliate network is the conglomeration of web publishers and online merchants. The merchants pay a portion of their earnings to the website publisher when an end user does a particular action or completes a transaction that brings about profit for the online merchant.

The idea of affiliate programs was launched in November 1994 by CDNOW when they launched their BuyWeb service. It was influenced by the idea that music oriented websites could list albums and also review those that the users might be interested to buy. These websites would also offer links to CDNOW web site where users could place their purchases for the music CDs.

One of the better and much more commonly known examples of affiliate program use is the website Amazon. Amazon launched their affiliate program in July 1996. The associates could place a link or advertisement on their websites and if the purchase was made the associate got paid. Commissions for affiliate programs is done by using Cost per Sale or CPS as a compensation system. Almost 80% of all trades are done using this. About 19 % use CPA or Cost Per Action. In these ways the associate or the advertiser must make sure that the visitor to the main host site has converted and makes an order.

Another new concept in the field of affiliate program network is the multi-tier program. It involves distributing commission by means of hierarchical referral network of sign ups and sub associates. At most two tier programs exist but almost all of the affiliate programs are always single tier. Some web merchants use in house affiliate programs using well known software while some merchants prefer to go through third party providers. The third party services are generally preferred as they are unbiased in judging traffic and sales. Based upon the selection of service used payment is done by merchants themselves or by a third party or affiliate networks in support of the merchant.

Now coming to the most intriguing part of affiliate programs. How to select an affiliate program for a target website? There are basically three ways by which you can find a related affiliate program. First and foremost is the affiliate program directories. These are a kind of handbook to pre-screened affiliate programs and include affiliate discussion forums, blogs and novice tools. The second way is to use vast affiliate networks that provide the system for lots of advertisers. This is generally a good way to start to get the hang of things. Third and the most cost effective way is to use the target website themselves. Generally target websites contain a link titled affiliate program that offers direct affiliate programs, but you have to be knowledgeable enough to know which one would work the best for you.

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Internet based marketing practice is called affiliate marketing where the business rewards its associates or affiliates for bringing visitors or customers through their marketing efforts. Stated simply the concept of paying a third party to increase the number of hits and customers to your web site is known as affiliate marketing.

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