Affiliate marketing is one of the most effective Internet marketing tools for generating online traffic. It's a great way for one site to piggyback on the popularity of another site to attract visitors, for a fee of course.

There are two key entities in affiliate marketing ' the advertiser and the affiliate merchant. The affiliate merchant is the guy with the popular Web site and impressive traffic. For a fee, he will carry the banner ads, links or content of the advertiser's Web site to help increase traffic to the advertiser's site. The affiliate merchant earns from advertising revenues based on how much traffic he can create for the advertiser.

If you're a small or medium-size business with only moderate sales activity on your site, you might want to try affiliate marketing with a major Web site to boost your traffic and jump-start your sales. In this type of Internet marketing, the main thing is that you tap a popular site which has the same type of visitors that you want to target. On the other hand, if you're a relatively popular Web site, why not offer your affiliate marketing services to less popular sites who have the same target audience as you.

How well does affiliate marketing work as an Internet marketing tool? Well, let's look at a real-life example.

You may know Amazon.com as a leading seller of books and other publications. Well, in affiliate marketing circles, Amazon.com is better known as the granddaddy of it all ' the company that got the ball rolling as the first truly major affiliate program.

Amazon unveiled its initial affiliate program model way back in 1996. Here's how it worked: Web site owners who wanted to make extra money (and who doesn't, right?) simply signed up to Amazon's affiliate program. In exchange, Amazon would provide them with their ad banners, links and other Internet marketing materials which the site owner would then place on his site. Every time a visitor clicks on these links, he is brought to Amazon's site. If the visitor buys a book or any other Amazon product, the Web site where the visitor clicked the link to get to Amazon earns a commission.

That affiliate marketing program has served as the Internet marketing model for countless other Web sites today. And how has Amazon fared with its affiliate marketing? Quite well, actually. Over 450,000 Web sites are now partners in Amazon's affiliate program.

As you can see, there are many ways to implement an affiliate marketing program. For instance, Web sites for cars and credit cards pay its affiliates simply for clicks, not sales. It's also possible for affiliates to earn per subscriber or per-thousand visits (CPM). The main thing is that affiliate marketing is a pay-for-performance scheme. As long as your site has a significant number of visitors, then you have a good chance of making money as an affiliate merchant.

Today, affiliate marketing is an essential component of many Internet marketing programs. There's absolutely no reason why affiliate marketing can't do wonders for you, too.