The third common revenue generation model is advertising and referral income. From the advertiser's point of view, referral fees are often considered an advertising cost. Many siteowners dream of sitting back and letting advertising revenue from their site support them from their easy chair. Few realise this dream. Since the number of commercial websites is increasing faster than the demand for online advertising, many millions of webpages go without paid advertising, and this tends to drive the cost of advertising down. A couple of years ago the average price of banner advertising was $37 CPM (Cost Per Thousand page views or "impressions"). In mid-1999 it has fallen to about $35 CPM. And much advertising sells for less than the stated rate card prices. Unless you have millions of impressions for sale per month, you can't hire an ad rep to find advertisers for you, so signing up advertisers is part of the work involved for this type of site.

To make a site pay for itself on advertising revenue alone requires a great deal of traffic. For example, at the rate of $20 CPM that less targeted site might generate, you'd need to have half a million page views sold to bring in $10,000 gross revenue in a month,. That's a lot!
The way you attract that kind of traffic is to have outstanding content: information, entertainment, news, an online community, etc. And that content itself is expensive. Most portals realise that they need multiple streams of revenue in order to prosper, so many are now try to sell products directly to their visitors as they pass by. Time-Warner's Pathfinder site will close down because, given their site traffic, an advertising model alone is not sufficient to underwrite the costs of publishing.
On the other hand, Slate found that charging subscribers cut into their ad revenue (because they had fewer page views); Slate content is now free, therefore, and total revenues are said to be higher as a result. Finding the right combination of revenue streams can be difficult.

A promising source of revenue, especially for smaller site owners, is affiliate program referral revenue. If the genius of the Internet is the hyperlink that connects every site in a vast network, then affiliate programs are native-born sons and daughters of the Web.
Amazon.com pioneered the revenue sharing model, and now pays affiliates 15% for sales that result from direct links to a book, and 5% of sales that result from the affiliate bringing the shopper to the Amazon.com site.

Merchants have found that customer acquisition costs from an affiliate program are substantially less than paying for banner ads with CPM prices. For example, at $35 CPM, a 0.5% click-through rate, and a 5% conversion rate (the percentage of visitors who make a purchase), it would cost a merchant $140 to make a sale.
With an affiliate program, the merchant only pays after an actual sale occurs, and the cost per sale is usually 10% or less than the cost of banner advertising.

Many smaller site owners, and some large online companies, have entered into affiliate agreements with a merchants. While the monthly income amounts are relatively modest for most siteowners, added to other sources of revenue they can help make a site profitable. Don't expect a small site to provide support from affiliate referrals or advertising alone, but consider these an additional revenue stream for the business.