How affiliate marketing provides fewer incentives to publishers than contextual marketing?
Affiliate marketing is based on pay-for-performance. Or in other words, as a business, you pay nothing when the desired action does not occur (typically a sale or a lead). For many companies like Amazon.com, this is a great model. It has tens of thousands of affiliates (or associates as Amazon likes to call them) who work for them as salespeople, who only get paid a commission when a sale happens. But do not forget that these associates are pretty savvy business people too. Many of them find that the return is not always as good as the effort that they put in.
This was not a problem in the beginning since most aggregators like Advertising.com, Overture, ValueClick, and others did not like the small guy. The rules were, however, changed after the introduction of the AdSense program by Google. The AdSense program is pay-per-click. Which means that if a publisher designs an excellent website with high-quality content, gets adequate traffic, and a certain number of visitors click on the ads (which are typically highly relevant), the publisher will definitely get paid something. Result: publishers are now gradually moving from affiliate marketing to contextual marketing.
Why affiliate marketing still makes sense as a separate channel?
Affiliate programs enable a publisher to have a lot more control on where the links are placed and how often they are placed. On the other hand with the AdSense contextual marketing program, Google determines what ads (if any) are placed. Sometimes, these ads can be totally irrelevant (e.g. jobs related ads on a page talking about Apple founder Steve Jobs) and may not appear in all zip codes. Publishers also never know how much a click is worth. Many publishers do not always like that model. Thus, in some cases they prefer to carry both affiliate links and AdSense advertisements or might even prefer affiliate programs.
How to exploit multiple marketing channels?
As we have been saying, affiliate marketing should be just one of the many channels that you should have in your portfolio. You will also need to have other forms of advertising including some form of contextual advertising to reach as many potential customers as you can.
If you think that affiliate marketing is more relevant for your products (e.g. products that sell well if recommended by others), then you have to set the reward at a sufficiently high level so that affiliates will be motivated to promote your products.