Navigating Platform-Led Affiliate Marketing: Implications for Content Creation and Platform Profitability

Recently, some user-generated content (UGC) platforms have introduced shopping features to generate additional commission-based revenue from in-app transactions. These platforms allow creators to produce shoppable content, where promoted products are tagged with affiliate links, and in return, they earn a percentage of the commission the creators receive from merchants (such a new business model is referred to as platform-led affiliate marketing). Despite its growing popularity, the impact of this business model on the key stakeholders (i.e., UGC platforms, content creators, and content consumers) has yet to be systematically analyzed in the existing literature. This paper aims to address this significant literature gap by employing a game-theoretic model. Our findings demonstrate that platform-led affiliate marketing can create a win-win situation for UGC platforms, creators participating in affiliate marketing, and content consumers. Furthermore, we find that even creators not participating in affiliate marketing can sometimes benefit indirectly from other creators’ participation. On the other hand, surprisingly, we find that UGC platforms may not necessarily benefit from adopting this emerging business model because of potential losses in traffic revenue. These results carry significant managerial implications for UGC platforms regarding whether and how to leverage affiliate marketing. Moreover, our findings suggest that creators may benefit from reducing their production efforts in the face of intensified competition. More importantly, optimal production decisions for creators can vary significantly, depending on specific factors (e.g., an increase in the number of creators or content substitutability) contributing to heightened competition. These findings offer valuable insights that can guide creators in refining their production strategies.

History: Karthik Kannan, Senior Editor; Martin Bichler, Associate Editor.

Funding: D. Liu's research was supported in part by the National Natural Science Foundation of China [Grant NSFC-72071118] and WU Jiapei Award for Information Economics in 2019 [Grant M19100295]. S. Kumar thanks Temple Center for International Business Education and Research for partially supporting this research.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.0620.