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My bank manager asked me similar questions a few years back. I tried explaining the affiliate-program business model using Amazon.com as the prime example, as well as providing several comparative examples such as the franchise system, sub-contractors, etc. We had a very lovely conversation for nearly an hour about this, after which I still sensed major confusion. She grasped the real-world applications, but every time the example was applied to the internet her grasp of the concept seemed to evaporate. Every. Time. And she's not the only one I've tried explaining what I do to.
Conclusion; when it comes to the internet there are still a lot of people out there who have zero grasp of what it is much less how money is made on it.
Thus this guy friend of yours isn't all that alone in his ignorance.
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