We have been having an interesting conversation about how you should structure the relationship with your affiliate program and whether or not you should allow them to bid on your search terms. The overall objective is to get more cost effective traffic to your site. On one hand allowing affiliates to search makes perfect sense, Google only allows you to bid on a term once, and with a highly competitive term you can then be in the rankings on a couple of places in order to receive a larger proportion of the available search share. However if it is on a brand term or on a term where there isn’t much competition affiliates could end up taking some of your search share, and then you end up paying more for the same traffic.

After speaking to a number of people and arguing around our sites we came up with the following best practises;
1) only allow a couple of search affiliates
2) Don’t allow them to bid on brand terms
3) No overbidding or outranking us
4) They need to send their keyword list for approval
5) Google doesn’t allow you to link to the same domain, so they have to create an interstitial page (which will be a huge decrease in clicks)

Essentially you want it in areas when there will be more competition and it gives you an opportunity for further traffic.