Affiliate Marketing is an Internet-based marketing strategy in which businesses reward affiliates (or partners) for each customer generated by an affiliate’s marketing efforts. Comscore reports that affiliate marketing accounts for 80% of all ad dollars spent online.

The Affiliate Marketing industry has four core players: Advertisers (also known informally as ‘Merchant’, 'Retailer' or 'Brand'), Publishers (also known as 'Affiliates'), Affiliate Networks, and Consumers. Advertisers are business with products and services to sell. Affiliate Network connect Advertisers to the traffic and marketing efforts provided by Affiliates. Sometimes, advertisers establish their own affiliate network and work directly with affiliates or use more than one affiliate network to promote their products and services. This market has also grown in complexity over the years, warranting a second tier of players, including Affiliate Management Agencies, Super-Affiliates and Specialized Third Parties vendors.

Affiliate marketing overlaps with other Internet marketing methods, because affiliates often use conventional online advertising methods. Those methods include contextual advertising, display advertising, e-mail marketing, organic search engine optimization, paid search engine marketing and social media marketing. Affiliates use these methods to generate customers for advertisers.

Low Risk and Increased Sales

Generally advertisers rewards affiliates based on actions that produce measurable value to the advertiser. Eighty percent of affiliate network programs today use revenue sharing or cost per sale (CPS) as a compensation method, nineteen percent use cost per action (CPA), and the remaining programs use other methods such as cost per click (CPC) or cost per mille (CPM).

Cost per action/sale methods require that referred visitors do more than visit the advertiser's website before the affiliate receives a commission. The advertiser must convert that visitor first. It is in the best interest of the affiliate to send the most highly-targeted traffic to the advertiser as possible in order to increase the chance of a conversion. In this way, the risk and loss are shared between the affiliate and the advertiser.

Advertisers favor affiliate marketing because in most cases it uses the "pay for performance" model, meaning that the advertiser does not incur a marketing expense unless results are accrued (excluding any initial setup costs). Some businesses owe much of their success to this marketing technique, notable examples include Amazon.com and eBay.com.

Affiliate marketing is also called "performance advertising", in reference to how sales employees are typically being compensated. Such employees are typically paid a commission for each sale they close, and they are sometimes paid performance incentives for exceeding targeted baselines. Affiliates are not employed by the advertiser whose products or services they promote, but the compensation models applied to affiliate marketing are very similar to the ones used for people in the advertisers' internal sales department.