In many cases AdSense does not have the most profit potential, but it is the most profitable for many content sites. The reason for this is that AdSense is very easy to use and the targeting behind it is very sophisticated. With affiliate marketing you're going to need to do a bit of work. You can't just throw some affiliate banners on your site and expect to cash big checks.
I'm going to describe how the two work, as well as give some tips that might help you make the most out of them such as when to pick one over the other and how to use them both together. I'm leaving out Amazon as an affiliate in this one and dealing strictly with Affiliate Networks. Amazon is a slightly different beast but some of what's described here can apply.
Paid Per Click vs Paid Per ActionAdSense is a pay per click (PPC) advertising network. All that you need to do is display the ads on your pages and hope that someone clicks on them (remember don't click your own ads and don't encourage others to either.)
Affiliate programs work on a pay per action (PPA) basis. What that means is, your site's visitor needs to not only click on the advertisement from your site, they also have to perform some sort of action on the advertiser's site for you to earn anything. The action they need to perform is usually one of the following, make a purchase on the site (sale) or provide their personal information (lead).
While some companies offer their own affiliate programs, it is going to be simpler to deal with affiliate networks. Affiliate networks are companies that provide the tools you need to get banners and links from the hundreds of companies that use their services. You can quickly find companies that offer affiliate programs and manage them all through the affiliate network's website. This helps your job as ad manager easier.
What Ads Display On Your PageThe first thing to understand is what ads will display on your pages. With Affiliate Networks, it's pretty simple. You select which ads to display. With AdSense, you don't necessarily know which ads will show up on your pages.
Google has served countless ads over the years and has worked on their targeting algorithm to select ads that will give you the best return. They use a number of factors to do this. One of the main factors being the keywords they find on the actual page that is serving the ads, as well as information on the URL of that page (domain name, directory, filename even query params sometimes.)
But that's not all, they can tell what part of the world the IP address of the visitor is from and can use that to influence the ad selection. What about the time of day? Maybe at 3am different ads will work than at 8pm or 10am? Google can take that into consideration. Some of these other criteria I believe are likely but I don't know for certain if they are used or not, but Google can collect information for the same visitor across many AdSense publisher sites. That might help them determine more about what ads might work for that visitor. They may even have some sense on the demographic categories that visitor may be part of, such as their age. Information is power and Google has a lot of information, how much they actually use isn't disclosed.
They've done a pretty good job of tweaking their ad serving algorithms and most people find AdSense works well for them. This isn't always the case, especially when you first start displaying AdSense ads, but as time goes on, and the AdSense crawler visits your page more, it will get a better understanding of your site's content and your visitors. You don't have much control, but Google does give you a number of ways to help the crawler better understand your content and keywords as well as giving you the ability to block some advertisers.
If you're using an affiliate network, it's up to you to select the advertisers, sign up for their programs, go through their banners and links then choose which ones you think will work best on your site. It may take a long time for you to figure out which ads will give you the most revenue. While you're putzing around trying to find the right combination of advertisers and banners for your site, AdSense is making money for you regularly. This is where you appreciate the main benefit of AdSense; Google is your full time, experienced ad manager.
Why Bother With Affiliate Programs?After the last section, you might be wondering if AdSense is so good, why even bother with affiliate programs? Some people have so much success with AdSense, they don't even bother. Not everyone is making $30k a month with AdSense though, and affiliate marketing has the potential to bring in even greater revenues than AdSense.
But like I said, to get that extra revenue you're going to have to work harder for it. You're going to have to select the right advertisers and the right links for your site's visitors. Unlike AdSense though, you know what the ads are and you can actually communicate with your visitors to entice them into clicking on the affiliate links and purchasing a product.
If you run a blog, for instance, you can discuss the advertisers in your posts. If you have a loyal following that values your opinion, they will be more likely to take your advice. Be warned though, you want to take care in which advertisers you promote, because if you lose your readers' trust by promoting bad products, just because there is a potential to make a big commission, they might not take your advice anymore and even stop subscribing to your blog. J.D. Roth, from getrichslowly.com, takes great care in the affiliate programs he displays on his site. That hasn't stopped him from turning blogging into his full-time job. In fact, it's probably why he was able to do it.
This has been the most effective for me. The closer you can link to a specific product someone can purchase the better. It's been much more effective than just showing banner ads.
AdSense, Affiliates or BothEvery site is going to be different. You should test different options to see which one works best for you. You can try AdSense for one month, then affiliates for another. You probably don't want to alternate them randomly because it might raise a flag with the AdSense crawler if it visits your site and doesn't find the AdSense code.
In most cases, you'll want to use both. Google allows you to use other advertising on your site as long as the ads don't look like AdSense ads.
Since AdSense works on the keywords in your site, many of your AdSense ads will be similar. This gives you an opportunity to try and get ad revenue from ads that your visitors would be interested in but that AdSense wouldn't usually display.
For example, if your site is about gardening, your AdSense ads will be very closely related to gardening, flowers, plants, etc. but people that are interested in gardening likely have a house and might be interested in home furnishings, home repairs, carpeting, etc.
You also have the opportunity to present seasonal ads. In the winter you might want to show ads for warm clothing, in the summer travel ads, around Christmas gift ideas, you get the point.
You'll want to try and find ads that don't compete with the AdSense ads but still provide good results. That way if you're visitors aren't interested in one ad, maybe the other will grab their attention.
You're going to spend a lot of time trying different advertisers, different links, different placements to see what works. That time should be rewarded if you do a good job and you're getting good traffic to your site.