The amount of business and even e-commerce literature that equates affiliate marketing to multi-level marketing is substantial enough for me to address this common misconception in my blog. Paul Ford, for example, in his Multi-Level Marketing brochure states that affiliate marketing is just another term for MLM marketing, a name that appeared due to recent changes in legislation regulating businesses that employ multi-level systems. Shah and Erickson in their Dictionary of E-Commerce state that affiliate programs use “a multi-level marketing concept where consumers (affiliates) attract additional consumers.” Well, first of all, affiliates are most often not consumers, but marketers, and frequently, professional marketers. Secondly, the “multi-level marketing concept” is utilized only when an affiliate program has a second tier, which allows affiliates to either (a) earn a one-time bounty on every affiliate they refer to the merchant (e.g. you may decide to pay your existing affiliates $1.00 for every new affiliate sign-up) , or (b) be paid a lifetime second-tier commission on all sales generated by the affiliates they refer (e.g. a merchant may be paying a 10% commission on the first tier, and 2% on the second tier). It is this last possibility that merchants have that confuses some people; and it is important to mention that it is extremely unusual for any affiliate program to have more than two commission tiers (most have only one).
In her Riches in Niches book Susan Friedmann warns affiliates from being trapped into MLM type “affiliate” programs, especially those that charge affiliates to join the program. Just as the sign-up fee should immediately raise a red flag in the affiliate’s head, so should the presence of multiple tiers too.
Another interesting point is being raised by Scott Dacko in The Advanced Dictionary of Marketing. Dacko states that the scope of network marketing (also known as matrix marketing or multi-level marketing) overlaps “with many aspects of affiliate marketing.” He writes that the basic approach of both affiliate and MLM marketing is united by “the use of an interconnected system of firms or other individuals outside the organization who essentially act as agents of the firm in facilitating the distribution of the firm’s offerings and in securing sales from end-customers.” The author is only partially right — both affiliate and MLM marketing use outside people to market a product/service. However, the outside sales force that is “interconnected” in MLM programs, is not in any way interlocked in affiliate marketing programs. Additionally, while the primary goal of most MLM schemes is to create (and profit from) pyramids of resellers, the main idea behind affiliate marketing is the creation of a direct partnership/affiliation between a merchant and an affiliate, and collaborative work towards the achievement of common goals — creating sales, leads, or other desirable end-customer actions. There are other specifics, but these would be main differences.
Affiliate marketing is not MLM marketing, and a close look/comparison quickly reveals the differences.