The downsides are obviously that it eats up 10% of your space and puts people off clicking it. And the vast majority of people who are not merchants, affiliates or involved in marketing don't know what the word "affiliate" signifies, to them it's just an unknown word, and people tend not to click on ads that they don't understand.
Just a question... :)
Why do affiliate ads that link directly to merchant sites have to be marked with the word "affiliate"?
I think I better let others answer that ;)
I feel it has something to do with impersonation - you are not the actual merchant.
Rather than waste 10% of your ad space, you should try these tricks - they are NOT guaranteed to work though!
- When you receive a mail from Google asking you to identify your "affiliate" status, logon to your account, change the ad copy a little and resubmit. If you are lucky, the submission will go to a different editor who MAY overlook the affiliate status of your website and accept the ad copy.
- Identify affiliate status in the "displayed URL". That is, enter http:/affiliate.merchanturl.com in the "displayed URL". A few editors may take pity on you and accept the listing.
These two are not guaranteed to work. The best way to go about it is to buy a domain name and build a website around affiliate program and submit. Acceptancy is 100% in this case.