Google Tests an Ad Idea: Pay Only for Results

[DNP]

SAN FRANCISCO, March 20 — Google is experimenting with a new proposition for advertisers: if you don’t get results, you don’t pay.

The company said Tuesday that it would expand a test of a system that allows advertisers to pay only when an ad spurs a consumer to take an action, be it purchasing a product, subscribing to a newsletter or signing up to receive a quote from a mortgage broker or car dealer.

The vast majority of advertisers now pay Google when a user clicks on ads that are displayed alongside its search results or on other Web sites, while some are billed based on how many people view the ads.

“We’re optimistic that it will be something that will be very compelling for advertisers,” said Susan Wojcicki, vice president of product management at Google. Ms. Wojcicki said the system would also give participating Web publishers a wider choice of ad types for their sites.

Under the “cost per action” system, advertisers decide what they are willing to pay for a specific action, like a purchase or a software download. Armed with that information, Web site publishers then choose whether to run a specific ad or group of ads on their sites.

Many advertisers find cost-per-action appealing, as it greatly reduces their risk, since they are not charged for ads that are ineffective. The model has long been used online by “affiliate marketing” companies like ValueClick, which have created networks of hundreds or thousands of Web sites that display small ads for e-commerce sites. The publishers are paid when they refer a user who makes a purchase.

But many other companies are using cost-per-action ads in different ways. They include the search-engine start-up Snap, which displays cost-per-action ads next to search results, and Turn, a network that matches advertisers and publishers interested in cost-per-action ads.

“We think it is a model that all the large players in search will be embracing over time,” said Tom McGovern, the chief executive of Snap.

For the time being, Google is not putting cost-per-action ads next to search results, limiting them to publishers’ Web sites and essentially creating its own affiliate marketing network. Industry insiders said Google’s entry into the market was likely to accelerate its growth.

“This is a big market at an early stage,” said Ellen Siminoff, chief executive of Efficient Frontier, a search marketing firm.

Cost-per-action ads have another advantage: They virtually eliminate the problem of click fraud, a scam in which people or computers generate clicks on ads for the sole purpose of getting a payment.

While the appeal of the cost-per-action model to advertisers is clear, some analysts believe publishers may be more reluctant to embrace it, at least for now.

“For publishers, it increases the complexity of their business,” said Mark Mahaney, an analyst with Citigroup. Publishers have limited space for ads and need to maximize the revenue they generate. A cost-per-click model is risky, since it provides no guarantees that a publisher will receive any payment for a given ad.

Mr. Mahaney said Google could make the system more effective and appealing if it figures out an automated way to predict how much revenue each ad is likely to generate. Advertising.com, a unit of AOL, uses such a system to determine the right placement for cost-per-action ads on publishers’ sites.

For now, the affiliate marketing business remains relatively small. ValueClick’s affiliate marketing unit, the industry’s largest, had sales of $112 million in 2006, while Google’s revenue topped $10 billion.

Google’s test is limited to about 75 advertisers and 75 publishers. A test last summer had about 30 advertisers and 30 publishers.

http://www.nytimes.com/2007/03/21/business/media/21google.html?_r=2&ref=technology&oref=slogin

 

[RatherGood]

Sounds lucrative. I'm sure google's earnings will be unaffected by switching to the honour system and having the traffic buyers just honestly tell them if the traffic resulted in a sale.

 

[namestrands]

I like it.. CPA is the way to go.

 

[Varchar]

Nice... I am paying a lot of clicks that don't resolve sales daily. I definitely like cost-per-action for sure!

 

[dnalias]

does anyone know of a site that is goog publisher?

 

[namestrands]

It will wipe out Click Fraud in one Swoop.. perhaps it will be the end of the PPC Parking Programs... well they will need to change with the times I guess.

 

[NAK]

what is to prevent the advertiser from having a 10 or 100 page feedback form? they can make it hard to convert so they can drive traffic to there site for free, now the domain owner is victim of fraud

 

[Duckinla]

I like it.. CPA is the way to go.

For some products yes, but not for all products. For example, it may be good for ringtone downloads, but not for introducing a new car to the market.

Remember, the publishers get a say in this too. If puplishers resist CPA ads, it won't work. We tend to think of this business as publishers have to take whatever opportunity is offered to them. There are getting to be enough options that this is not necessarily the case anymore.

what is to prevent the advertiser from having a 10 or 100 page feedback form? they can make it hard to convert so they can drive traffic to there site for free, now the domain owner is victim of fraud

Don't forget that Google has a stake in this to. They won't allow a situation that puts them out of business.

 

[Fearless]

Someone needs to replace Commission Junction. Might as well be Google.

 

[Gerry]

It will wipe out Click Fraud in one Swoop..

That's exactly what I was thinking while reading it. Now the person who actually clicks on a link will have to follow through. Could be interesting on the PPC parking arena.

I think I'll just develop every domain I own and then the only one I have to blame for poor performance will be me.

Naw, I'll find someone to hang...:yo:

Someone needs to replace Commission Junction. Might as well be Google.

Fill me in on the CJ thing.

I just signed up with them.

 

[biznews]

From what I read in a private journal, it will be a combination of PPC and CPA, where the payment to the publisher will be significantly higher for CPA leads. Payment for clicks resulting in no leads or sales will be significantly lower. Low enough to root out scammers and high CPA payments to reward publishers.

PPC isn't going anywhere. It will just solidify the PPC industry. All in all a good sign. My only fear is, not all CPA offers are sales transaction based. Fraudsters may still milk the system for CPA leads by completing forms, leads for no good reason other than to validate the CPA reward.

 

[dnalias]

PPC isn't going anywhere. It will just solidify the PPC industry. All in all a good sign. My only fear is, not all CPA offers are sales transaction based. Fraudsters may still milk the system for CPA leads by completing forms, leads for no good reason other than to validate the CPA reward.

agree, ppc is not going anywhere, and some fraud will always exist. same goes for the cpa model.

 

[Gerry]

PPC isn't going anywhere. It will just solidify the PPC industry. All in all a good sign. My only fear is, not all CPA offers are sales transaction based. Fraudsters may still milk the system for CPA leads by completing forms, leads for no good reason other than to validate the CPA reward.

Possible, but that would seem to get old after a while. Perhaps some built in measure identifying IP may help or something of that nature to "limit one per household".

It may be the right step, a small step, in the right direction. Completing forms certainly takes longer than simply clicking.

From an advertiser's point of view, I will never pay Google or Yahoo for page ranking or for listings when they are so prone to fraud just to drain the funds and drop you down.