About Affiliate Marketing

Affiliate Marketing is a popular method of promoting web businesses in which an affiliate is rewarded for every visitor, subscriber and/or customer provided through his efforts. It is a modern variation of the practice of paying finder's-fees for the introduction of new clients to a business. Compensation may be made based on a certain value for each visit (Pay per click), registrant (Pay per lead), or a commission for each customer or sale (Pay per sale), or any combination.
Most attractive aspect of affiliate marketing, from the merchant's viewpoint, is that with this pay for performance model, no payment is due to an affiliate until results are realized.
Some e-commerce sites run their own affiliate programs while other e-commerce vendors use third party services provided by intermediaries to track traffic or sales that are referred from affiliates. Some businesses owe much of their growth and success to this marketing technique, although research has shown in general the increase to be approximately 15-20% of online revenue.
Some advertisers offer multi-tier affiliate programs that distribute commission into a hierarchical referral network of sign-ups and sub-affiliates. In practical terms: publisher "A" signs up the affiliate program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A" attracts other publishers ("B", "C", etc.) to sign up for the same affiliate program using her sign-up code all future activities by the joining publishers "B" and "C" will result in additional, lower commission for publisher "A".
Snowballing, this system rewards a chain of hierarchical publishers who may or may not know of each others' existence, yet generate income for the higher level signup. A similar structure has been successfully implemented by a company called Quixtar.com. Quixtar has implemented a network marketing structure to implement its affiliate marketing program for major corporations such as Barnes & Noble, Office Depot, Sony Music and hundreds more. Most affiliate programs are simply one-tier.
Merchants who are considering adding an affiliate strategy to their online sales channel should research the different technological solutions available to them. Some types of affiliate management solutions include: standalone software, hosted services, shopping carts with affiliate features, and third party affiliate networks.
In its early days many internet users held negative opinions of affiliate marketing due to the tendency of affiliates to use spam to promote the programs in which they were enrolled. As affiliate marketing has matured many affiliate merchants have refined their terms and conditions to prohibit affiliates from spamming.
Currently there is much debate around the affiliate practice of spamdexing and many affiliates have converted from sending email spam to creating large volumes of autogenerated webpages each devoted to different niche keywords as a way of SEOing their sites with the search engines. This is sometimes referred to as spamming the search engine results. Spam is the biggest threat to organic search engines whose goal is to provide quality search results for keywords or phrases entered by their users. Google's algorithm update dubbed "BigDaddy" in February 2006 which was the final stage of Google's major update dubbed "Jagger" which started mid-summer 2005 specifically targeted this kind of spam with great success and enabled Google to remove a large amount of mostly computer generated duplicate content from its index.

http://en.wikipedia.org/wiki/Affiliate_marketing