Google Expands Beta for Pay per Action Ads

Alert search engine marketers first noticed the announcement of limited testing in late June 2006, but most of us could only wait impatiently and ponder what it meant. Now that Google has opened things up, we can get a better handle on what’s going on. What is it? It’s pay per action, Google’s newest feature for AdWords and AdSense users.

Pay per action isn’t exactly new; search engine Snap has been doing it for quite some time now (though it recently had to change its model). But Google’s involvement in pay per action advertising marks the first time it’s gone this high profile. Or maybe it doesn’t, if you draw parallels to affiliate marketing (more on that in a bit).

For those of you coming a little late to the game, let me define a few online advertising terms. “CPM” is cost per thousand impressions, and is often used to price banner ads and similar items. “CPC” or “PPC” is cost (or pay) per click advertising. Instead of paying for eyeballs, the advertiser pays every time someone clicks on his or her ad. Both forms of advertising are subject to fraud; with PPC advertising, in fact, there’s been a lot of debate surrounding the frequency of “click fraud,” up to and including what kinds of clicks fit the definition. (Neither advertisers nor search engines can read people’s minds, much as they both would like to).

Cost per action (CPA) or pay per action (PPA) is different. Instead of paying for a certain number of impressions or for clicks on ads, advertisers pay every time someone clicks through the ad and completes a particular action. The action can be anything that can be tracked online: signing up for a newsletter, giving some personal information for a sales lead, buying a product, or even some combination of these actions (say $1 if the web surfer fills out a form and $5 if he or she buys something).

This is going to change the online advertising dynamic in a number of ways. It also threatens at least one company’s business model. Let’s take a closer look at what this new option means for advertisers and for publishers.

The first thing to remember is that these ads appear on Google’s publisher network, not as sponsored links on Google’s own search engine results pages. It wouldn’t be surprising if Google eventually expanded the model in that direction, though. Anyway, according to Google’s FAQ about pay per action, advertisers do get a certain amount of control. They specify what action(s) they’re willing to pay for, and how much they’re willing to pay for each action.

Advertisers also decide how much they are willing to spend on a daily basis for their PPA advertising. Google lets them set a daily budget, much as it permits them to set budgets for PPC advertising. However, it should be noted that advertisers are responsible for “conversions that occur up to 30 days after a per-per-action ad was clicked.”

Advertisers can also choose several different formats for their ads: text, image, or the new text link ad format. Let me explain text link ads before I go any further. Google launched this ad style quietly, almost as if it were seeking to hide the announcement behind bigger news. Google describes them as “hyperlinked brief text descriptions that take on the characteristics of a publisher’s page. Publishers can place them in line with other text to better blend the ad and promote your product.” The only thing that specifically shows that it is an ad is that, when a web surfer mouses over the link, it will display the phrase “Ads by Google.” I’ll explain why this kind of advertising is controversial in a bit.

What you can’t do, apparently, is choose the kinds of sites on which your ad appears. That’s left up to the publishers. You can make sure they can see your product name, product description, logo, each of your defined actions and how much you’re willing to pay for each action. They’ll also be able to see your complete PPA ad. Additionally, you can provide a URL to give the publisher more details about your product to help them make up their minds.

Personally, if I were advertising with Google using PPA, I’d want to use that link to help sell myself to the right publishers. Let me give you an example from a company that’s been severely hurt by the Internet revolution: Encyclopedia Britannica. Back when they still sold the dead tree version, EB did remarkably well at medical conventions; a friend of mine who made his living as an EB salesman for three years noted that his pitch at those conventions was literally “Doctor, have you bought your Britannica yet?” and it worked. Given that, if Google’s PPA service were available in EB’s heyday, one would assume that a medical site aimed at doctors would be a good place for their ads to appear – but the site’s publisher wouldn’t necessarily know that. So a savvy EB marketer would use the URL to link to a landing page that made his case.

You do have to meet a few requirements before you can participate in Google’s pay per action advertising beta. Currently Google is only accepting US participants. You also need to have conversion tracking set up on your website. But you can apparently choose to have your ad displayed to publishers in other countries.

So what does PPA offer publishers? They can decide which ads display on their site, or let Google determine that for them. They can tell Google to run ads that are related to a particular topic. Publishers can look for ads to run on their site either by putting in key words, browsing by product category, or hunting through the entire inventory of available ads.

Of course you no longer get paid when a visitor clicks on the ad; they have to click on the ad AND perform a particular action. That can be a little nerve-wracking for publishers; it means your ad income is more dependent on a site that is not under your control. Publishers participating in this program receive email reports of conversions accrued and total revenue. (Advertisers also receive somewhat more detailed reports on how their ads are doing).

On the other hand, if you do manage to pull off a conversion, the payoff is bigger. Advertisers are willing to pay more for completed actions than for mere clicks. The big question for publishers is do you really want to participate in an affiliate network?

That’s pretty much what the new program is, when you get right down to it. Some have even labeled the pay per action program Google’s “ValueClick killer.” And many sites don’t do very well as affiliates.

There’s no requirement to sign up for the new program, of course. Google notes that those participating will be part of a separate network, though some of the literature I’ve read about it implies that publishers would be permitted to run both PPC and PPA ads on the same web site – and possibly even on the same page. It means more options, and a lot more to think about, for both advertisers and publishers. 

PPA changes the equation significantly between publishers and advertisers. Advertisers are no longer risking their money for something that might or might not happen; effectively, it’s the publisher that’s taking that risk. As one Webmaster World forum member pointed out, if an ad doesn’t perform, the advertiser is, in effect, getting free advertising.

Some have noted that this program should wipe out click fraud. But others have argued that it will merely change its form. What happens, for instance, if the customer completes the action but then changes his or her mind? Does that mean the advertiser does not have to pay out, or perhaps even receives a refund? That would be a fine day for publishers, when they have to watch their advertisers to make sure they don’t lie about conversions! Still, “refund fraud,” as it’s already being called in some places, would probably be harder to carry out, and certainly take a lot more effort than click fraud.

Some have predicted that this will be the final nail in the coffin for ValueClick and Commission Junction. In fact, David Jackson, who writes about Internet stocks for SeekingAlpha, reported on receiving an invitation to try Google’s early beta of the program (as a publisher) back in 2006. The day after he received the invitation, “soon after the market opened, I shorted ValueClick.” Jackson was probably right to do that in the long term, but ValueClick certainly isn’t dead yet. Some CJ affiliates have reported receiving a lot of support to help them improve their sites and make more sales. Will Google be able to do this? It doesn’t strike me as something that can be automated easily.

But aside from entering a whole new business area, Google has also stirred up some controversy with new its text link ads. Remember, these are not clearly marked as ads unless they’re hovered over, and because they’re text-based, they’re much easier to blend into the content of a web site. That blurs the separation between content and advertising in a way that is very similar to the pay-for-post blogging you may have heard about.

That poses a real ethical issue for Google. Those who take journalism seriously interpret “don’t be evil” in a number of ways, and “don’t chip at the wall between advertising and content” is one of them. Then again, does “don’t be evil” stretch to “don’t enable others to be evil”? That’s a very good question, but it’s likely to be lost in the advertising scramble.

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