July 13th, 2006
Pay-Per-Click Ads Are “Indifferent Displays of Advertising”
Beyond affiliate and cost-per-action advertising, all paid media advertising models — from billboards to print ad to TV spots to pay-per-click text ads — are “indifferent displayers of advertising.” I lifted that apt phrase from Bruce Schneier’s Wired piece on Google’s click fraud crackdown:
Google is testing a new advertising model to deal with click fraud: cost-per-action ads. Advertisers don’t pay unless the customer performs a certain action: buys a product, fills out a survey, whatever. It’s a hard model to make work — Google would become more of a partner in the final sale instead of an indifferent displayer of advertising — but it’s the right security response to click fraud: Change the rules of the game so that click fraud doesn’t matter. [Bold is mine]
Schneier used this “indifferent displayer” phrase in the context of discussing the security problems inherent in the specter of click fraud. But it points to the larger problem with pay-per-click advertising — it’s measurable and accountable, which is a huge leap forward from traditional advertising, but at the end of the day, pay-per-click ads DON’T CARE what happens after you click.
As Schneier points out, this is why Google is focused on developing a cost-per-action model. And he’s right that it’s “a hard model to make work” — especially if you’re Google, with a $6 billion pay-per-click cash cow at risk. How does Google get advertisers to value cost-per-action without fundamentally devaluing cost-per-click? Google will try to have it both ways — to be a true partner in carrying the risk of cost-per-action and an erstwhile “partner” in pushing cost-per-click.
But the problem of click fraud will likely lead a lot of advertisers to seek out advertising platforms that are “partners in the final sale” and not “indifferent displayers.”
Google of course has its huge network of AdWords advertisers and AdSense partners, which is a considerable advantage in developing a new cost-per-action model.
But like Microsoft, which had previously enjoyed the advantage of a huge installed base, Google hasn’t cornered the market on innovating advertising value propositions and creating new dynamic models.
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You pose a great question in “How does Google get advertisers to value cost-per-action without fundamentally devaluing cost-per-click?” And I would say the answer is it can’t be done. Cost per click has been fundamentally overvalued for some time anyway because there have been no other viable alternatives. The value for cost per click will inevitably decline as cost per action models become more readily available. This will become even more true when there is an inevitable downturn in the overall economy. But the days of being able to charge high prices for cost per click are rapidly coming to an end. And since Google is now moving into somewhat new territory they will likely be more vulnerable to innovative competitors. I would say that Google is about to enter a period of “interesting times” in the Chinese curse sense of the phrase.
If you Pay Per Click is bad, then CPA is a Nightmare…
Yet another articleout today calling CPA the Savior of google because Pay per click is bad.   It is mildly amusing that everyone who writes these articles has no actual experience as an advertiser/publisher.
My biggest concern these days when do……
Great questions. But cost-per-action as a solution presumes that there is no value in wide dispersion of adwords and adsense as a ubiquitous branding or spamming vehicle. Without a doubt, search falls more into the camp of direct response, not branding or reach. But if CPA becomes the model, then what is the barrier to overloading the inventory of adwords and adsense with an aggregation of exposure that could be worth something. That must be deal with in such a model.
What could save PPC value relative to CPA is just how difficult will the CPA model prove to be to implement? How do you monitor the middlemen? How do you monitor the merchants? Would any fraud simply be shifted from adsense publishers and random people clicking to Affiliate marketers and deep pocketed advertisers? There is a very interesting take on this here: http://plentyoffish.wordpress.com
Joesph
I agree completely with you about the difficulties of implementing a CPA based ad sytem and dealing with the trust issue (which has been called CPA fraud) with merchants participating in the advertising. They clearly would have an incentive to not report transactions which would be a nightmare for the intermediary. This is why at http://www.jellyfish.com we have built a CPA based advertising auction that actually brings another VERY interested and important party into the mix - THE CUSTOMER. We give a customer a share of the CPA advertising. This erases the CPA fraud issue because There are 3 parties involved that all need to get their share of the transaction. If a merchant doesn’t report a transaction we would have a very angry customer that would let us know immediately This eliminates the CPA fraud issues altogether and actually drives some additional value to the consumer who arguably deserves more for their attention and participation with advertising.
[…] To make the transition from clicks to conversions, Google needs to seize control of the system from end to end, and somehow find a way to control for fraud, which is still very much a risk with cost-per-action (from a comment on one of my recent posts on this issue): What could save PPC value relative to CPA is just how difficult will the CPA model prove to be to implement? How do you monitor the middlemen? How do you monitor the merchants? Would any fraud simply be shifted from adsense publishers and random people clicking to Affiliate marketers and deep pocketed advertisers? […]
action: buys a product, fills out a survey, whatever. It’s a hard model to make work  Google would become more of a partner in the final sale instead of an indifferent displayer of advertising  but it’s the right security response to click…Read more at http://publishing2.com/...