The phenomenon of referral marketing has been around a long time, but it was pushed to great new heights four years ago in the USA. It took a bit of time to reach the UK. Now it's been hugely successful over here, with many companies building highly profitable businesses. These companies allow customers to receive highly sought after free gifts, through what is essentially an advertising website (known as a referrals website). Customers are required to encourage others to sign up to the referrals site in order to receive their free item, thus promoting the website and generating advertising revenue. There has be a steady growth of new UK referrals sites offering everything from Ipods to laptops.
Referrals websites are affiliated with a number of sponsor sites (Lovefim DVD rental, for example). Each of the sponsor sites advertise offers on the referral site, and a credit is received in return for completing one of these offers. Upon registering with the referrals website customers are required to complete one of these sponsored offers in order to activate their account. Customers are then required to refer a number of other people to the site; those who sign up are termed 'referrals'. Referrals who go on to complete a sponsored offer gain the original customer a credit and once the customer has gained enough credits in this way, they are sent their free item.
The key to the referrals system is that the referral website is paid by the sponsor for every customer who clicks on and signs up for a trial offer with that sponsor. So if someone signs up for a Lovefilm free trial through freebiejeebies, freebiejeebies will receive X amount of money from Lovefilm in the form of a commission. When this person then goes on to refer 11 other people to freebiejeebies (and if each of the 11 people sign up for a free Lovefilm trial), then freebiejeebies will receive payment from their affiliate sponsor for each of these 11 people, plus the original referrer. The result is that the referrals website receives sufficient funding to send the customer their free gift and to operate the referral site.
This system is a very clever and cost effective way of making money by directing traffic towards sponsors, with the direct benefit that the customer receives a share of their advertising revenue in the form of a free gift.