A better way to advertise online?

Companies are looking to get more bang for their online buck.

As merchants begin to sour on banner ads as a method of reaching consumers online, affiliate programs are taking off.

The programs, which allow companies to set up shop on sites all over the Web, offer more bang for the buck than traditional advertising methods, since companies only have to pay if the placements generate sales.

Bookseller Amazon.com (Nasdaq: AMZN) is widely credited with starting the trend, and has signed up thousands of affiliates. Those affiliates promote Amazon's wares on their own sites. If a customer clicks through to Amazon and makes a purchase, the affiliate gets a percentage of the sale.

The scheme has proved so popular, that companies like Be Free and LinkShare have started affiliate networks, essentially outsourcing the process for retailers and giving prospective affiliates a central place to sign up for multiple deals. The networks have caught the attention of some big players. Dell Computer Corp. (Nasdaq: DELL) recently said it would work with LinkShare to set up an affiliate program of its own, starting with around 50 Web sites.

"It's lead generation. It's been proven to work, and we're excited about using it," said Dell spokesman Dave Dix. "We're trying to grow very aggressively in all areas, and this helps us to reach more consumers."

It's also performance-based, something a company like Dell doesn't receive with a standard banner ad or sponsorship deal. That's what makes this type of deal attractive to major retailers, analysts said, and why more can be expected to begin signing up.

Affiliate programs growing
A Jupiter Communications survey of leading Web sites last December found that only 16 percent of travel, financial services and retail sites had affiliate programs. But Jupiter analyst Ken Cassar said that "that number will and should be higher when we come back," next year.

"With a traditional ad on [television] you're buying real estate -- a block of time. But you don't know how many people will show up, or how many respond positively," he said. "[Banner ads eliminate] the risk that no one shows up, because you only pay for those that see the banner, but there is still the risk they may not respond positively. An affiliate program eliminates the rest of that risk, you only pay for performance."

So is there a downside? Well, for one, consumers could rebel against sites clogged with dozens of buttons and banners flogging products, the same way some reject sites loaded down with ads.

And affiliate sites may find that the programs become one-shot deals. Consumers may just go directly to the merchant the next time they want to buy something, said Kate Delhagen, an analyst at Forrester Research in Cambridge, Mass.

But Delhagen said that despite those issues, the programs should become even more popular, especially since companies like BeFree and LinkShare can handle the workload.

Big names joining
LinkShare says it had already signed up more than 150 merchants, including big names like The Disney Store Online and 1-800-Flowers. And Be Free has gathered names like BarnesandNoble.com and GeoCities into its fold.

On average, affiliate programs generated 17 percent of sales, Cassar said. But that number should rise as companies get more adept at managing the programs, he said.

"Companies will shift ad dollars toward more performance based means," he said.


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