A merchant who is planning on starting an affiliate program, has studied my Online Guide to Affiliate Marketing and emailed me this question:
Can you please give me a quick overview of the pros and cons of running our program in-house or going with a network like Google’s Affiliate network?
Good question. There are indeed these two platform options: either (i) run the program on an in-house based software, or (ii) on an affiliate network. If you decide to use an affiliate network [see this comparison and this compilation], you do not need to worry about any tracking, reporting, or manually cutting payments to your affiliates, as the network performs these tasks for you. For their services, networks charge either a percentage of what you pay your affiliates, a monthly fee of some sort (many have monthly minimums too), or a combination of both [more here]. If you decide to run your program in-house, you would need to obtain tracking software, hosted services, or a shopping cart with affiliate features [see your options here]. Running reports, being accountable for all technical issues, and paying your affiliates would then be done by you alone.
I also addressed a very similar question in my A Practical Guide to Affiliate Marketing where on pp 21-22 you can read:
Question: Why pay a network when you can do it all in-house?
Answer: From first glance, it may seem to be more effective to run an affiliate program in-house. There are pros and cons to both methods of running an affiliate marketing program. In-house affiliate programs help you save money on network fees, while network-based affiliate programs allow for a broader exposure to an already-existing base of affiliates. It also allows for numerous affiliate recruitment opportunities. As mentioned above, networks also take away the burden of check-writing, banner serving, reporting, and affiliate technical support. However, some networks spell it out in their TOS that the relationship with all affiliates is property of the networks (regardless of the fact that many of your own affiliates will be recruited by you, personally). The advantages and disadvantages of having a program on the network or running it in-house must be carefully weighed, and the decision be made according to your individual need.
To add to all of the above, I normally recommend launching your very first affiliate program on a network, adding an in-house option in the future (if/when it makes business sense to do it).