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Traditional affiliate marketing has a lot of strengths, but it has some weaknesses, too. Here’s a concept that turns traditional affiliate marketing on its head.

For the most part, affiliate marketing is a win-win situation: affiliates get quality products to sell, and can make some extra cash (a significant amount, in some cases), while the owner of the product retains nearly complete control of the product sales, pricing and distribution mechanism.

There are some headaches, for both parties too. Affiliates usually are not able to build a customer base from affiliate sales alone – thus, if all you do is affiliate marketing, your income may be severely limited. The product owner is saddled with all customer support, and usually it takes an army of hundreds of affiliates (that all require some level support) to find even a few people who take the time to produce.

There are also a couple of other problems with running your own affiliate program. You still have to provide all the marketing material, and usually the affiliates link directly to your website – meaning that, if any of your affiliates engage in SPAM or other “inappropriate” activity, the product owners website and reputation can be damaged.

Many of the problems can be reduced or eliminate with professional marketing services such as PayDotCom or ClickBank.

Compare the traditional affiliate model with “resale rights” products, which solves a lot of these problems. The product owner gets a premium on sales of the product, then isn’t responsible for support, hosting or product delivery. The purchaser of the product then has the ability to create their own marketing campaign around the product, and can generally earn more.

There are problems with this model, too. First and foremost, it can only work with digital products that cost virtually nothing to produce. There are a few exceptions to this rule (like the right to print a book or copy a CD), but in general the model simply can’t work with more sophisticated products.

The real problem with resale rights products, however, is that, unless the product is strongly controlled and limited, a price war usually ensues that devalues the products so greatly that you can usually fall

The Life Cycle of a Digital Product

Launch – the product is brand new
Affiliate Program – other people can market the product in return for an affiliate commission (today, usually combined with launch)
Resale Rights – After a few months, when sales start to fall off, the owner may offer a resale rights package.
Master Resale Rights – Anyone can sell resale rights
Source Code – if applicable: the developer can sell the actual source code to the product
Free, or nearly so – through the price wars created by the hundreds and thousands of resellers, even great products can be picked up for nothing or as a bonus. Due to FTC regulations, if you sell resale rights, you can’t control the price – that’s called “price fixing”, and is illegal.

Even great products can be devalued in this fashion.

The question is, what to do to “break the cycle” and keep real products viable?

Let’s step back for a minute. Many of the products you’ve seen lately talk about “buy my resale rights, own your own product, and make money in software like Bill Gates!”.

Which of the above model do real corporations, like Microsoft, Oracle and others use? The answer? none of them! Microsoft didn’t sell a boxed version of DOS (or anything else) for years after they came out with the products.

What, then did they do? They sold licenses to DOS to IBM, Compaq and others – they collected royalties on their products. They didn’t sell directly to the customers – so they had no “affiliate program”, or any other direct channel, for that matter. Neither did they give away their products away by selling resale rights – instead, they collected a small fee every time another company sold their product.

Examine that business model, and see how it solves problems you are currently facing. As a developer with your own products, you no longer have to create marketing for the end consumers. Like resale rights software, there’s no affiliate program to run, there’s no direct customer support (unless you allow for that in your licensing agreement). The payments are usually larger, because you are dealing with fewer people. You get to do what you do best: develop quality products for the marketplace.

Like running an affiliates program, however, you keep getting paid time and time again for the same products – you aren’t giving away your prize gems, so you keep getting revenue, so you can do what you do best: keep updating quality products.

And, since you control the royalty fees (and other licensing terms, if you so choose), there can be no price war that makes your products virtually worthless. You set the royalty fee for the product, choose your licensees carefully, and let the market take care of what the product is worth. Companies that can add value to your products – in bundled solutions, for example – can charge and earn more from your products.

Yes, that sounds great, but I’m a marketer, what’s in it for me?

Frankly, even more than for the product owner.

By selecting products that you can sell on a royalty arrangement, you get nearly as much freedom as having your own resale-rights software. You can create your own marketing materials, you can integrate the products into your core business model. Rather than paying $1,000 up-front fee for resale rights to the products, you only have to pay the royalty when a sale is made. You are virtually guaranteed of fresh products at the top of the “curve”, rather than worn out products near the end of their lifecycle. And, since the original developer continues to make money from those products – from you, as well as other licensees, you will find that the developers have an incentive to keep the products up to date. Products sold using this model will never get into “1,000 resale rights products for $9.95” offers.

And, even better yet, the customers are yours. And, you can run your own affiliate program to sell the products that you then pay royalties on! Try that with any affiliate program available today.

I could (and should) go on about the benefits of this model, and will over the coming weeks.

What’s missing to make this model ubiquitous? The answer: third party tracking software. There are hundreds of affiliate scripts available, but nothing that tracks royalty payments due - yet.

Conceptually, the first thing you have to do is reverse the roles of the “marketer” and the “affiliate”. (Which, by the way, underlines another problem with affiliate marketing … the product simply has no place in the model, both sides of the coin is marketing).

Products don’t have to be just software – they can be anything. A patent, a song, a book, anything that can be bought or sold qualifies as a Product in this method.

We’ll call the “marketer” the “Vendor” and the affiliate the “Licensee”. Like a traditional affiliate system, the Vendor would go to the third party tracking service or write / and create such tracking software, sign up for an account then list the products for “sale”, and set the terms (price, license terms, etc) for each Product.

These products may then be listed in a Market Place.

The potential Licensee also signs up for an account, and chooses the Products, concepts or other properties they would like to license.

The Vendor then has then may have a chance to approve or deny the Licensee.

Once approved, the Licensee then may receive access to the Products for sale, or the Product may be delivered directly to the customer or through a separate fulfillment system, potentially using a distributed methodology (such as an XML-based fulfillment request) to distribute the Products through the Licensee’s system.

Depending on the implementation, the Vendor may provide fulfillment, or in the most common case, the Licensee provides fulfillment directly through the Tracking Software.

Special sales tracking code is then provided to the Licensee, either embedded in the Product itself or in the Licensee’s order / checkout system for the purpose of tracking each and every Sale of the Product.

When the Product is sold, a payment due is logged in the system, where the Licensee is the obligated to pay the Product Owner the agreed upon amount, and the sale is then concluded.

Note that it is reasonable that something the Licensee sells may contain many components, each potentially being a separate Product – in many cases the Products may come form different vendors from different vendors. This, a Multi-Media player for example may consist of Products from a Vendor that supplies MP3 licenses, another Product that consists of the Player itself, as well as other Products that consist of bonus software.

While the concept is sound, there is currently no software implementation of this concept.