Pay-Per-Click Destined to Evolve into Pay-Per-Action

Pay-per-click (PPC) advertising is big business. PPC generates revenues of billions of dollars every year for advertisers, and shows absolutely no signs of slowing down. Programs like Google’s AdWords, Yahoo! Search Marketing, formerly Overture, and late September, 2005, MSN announces it is joining the ranks of paid contextual advertising with its MSN Keywords and adCenter programs. However, no online single advertising scheme, especially one with inherant flaws, has survived the test of time. If history proves itself, PPC (along with Google) may soon be on the chopping block.

When PPC was introduced over a decade ago, attitudes ranged from slight amusement to outright shock to even feelings of personal betrayal. No one could have really guessed that online advertising would grow to a staggering rate of currently generating 40% of all online revenues.

How PPC got its start

Serial entrepreneur Bill Gross had a vision when he proposed an online search engine that ranked results based on how much advertisers were willing to pay to have their links tied to specific requests that we have fondly come to know as pay-per-click.

Gross pioneered his visionary approach at GoTo.com, which later changed its name to Overture Services before Yahoo bought it for $1.7 billion in 2003. Google introduced its own pay-per-click model, known as AdWords, in 2002.

As it has emerged into a highly effective marketing tool, the PPC system has spawned some unique problems, too. Looking for a competitive advantage, some advertisers have repeatedly clicked on a competitor’s link in an attempt to drain their marketing budgets. Other rogue web sites belonging to the ad networks maliciously click on commercial links to generate more commissions for themselves, either by manual clicks, robot-clicker programs, or have even generated companies that pay unsuspecting “employees” to click for them. We call this click fraud.

Every advertising system, whether it is straight buzz marketing, banner advertising, or a complex business model such as affiliate marketing or PPC, experiences its own unique set of obstacles and/or consequences. Now, with the rampant click fraud, and advertiser’s discomfort with unqualified traffic and untargeted sales audiences (like people who click, but have absolutely no intention of purchasing a product), as well as outrageous keyword bid prices, as much as $5.00 per click for words like “SEO Consulting Firm,” “PageRank,” and other highly competitive key phrases; there is a subtle voice on the wind calling for a change. Bill Gross stepped up to the plate once more.

Bill Gross is still an advertising pioneer, and while he readily admits the problems that grew out of his initial PPC model, he is confident that his new business model is even better. Some would say he’s an advertising genius, or at least ten years ahead of his time, perhaps. I think he is simply just a visionary, one that sees what is possible, and then simply goes after it. But even visions have a point where they seem no longer relevant for the time, and there is a time to revise the vision.

As visitor tracking systems become more sophisticated, two other online advertising models have been developed: “pay per lead” and “pay per sale.” These models initially prompted what we know as affiliate marketing, can offer advertisers valuable exposure on a range of relevant websites and offer website publishers the opportunity to generate revenue from their resource sites. It is the “pay per sale” model that is what Gross’ new model is built on.

A year ago, Gross introduced the online world to his new vision: Snap.com, which is providing another commercial twist on search engines while also promising to deliver more useful results than industry leaders Google and Yahoo. The idea is Pay-Per-Action, or PPA, where the “sale” is the action. According to their website, Snap states, “Instead of relying on computer algorithms to rank search results, Snap also uses click-stream information from a network of one million Internet users. By recording and processing which Web sites users spend time on, and which sites they quickly leave, Snap improves the likelihood that the search results you get will be the results you’re really looking for.” Gross’s record of innovation helped separate Snap from other startups trying to elbow their way into the search engine industry, while offering an innovative and revolutionary method of no-risk advertising.

Banner ads are almost all but obsolete, it seems. Affiliate marketing has almost lost its edge, and is having to make way for new forms of marketing. Ideas like Pixel Ads, which is the concept of selling a single pixel of an online website as advertising space, and other sometimes crazy ideas, are popping up everywhere; and new search technologies like Crystal Semantics’ Textonomy Advance engine which uses contextual advertising with smart, human linguistics to analyze the whole of a web page and bring the most relevant ads to online advertisers. And while some ideas fizzle and fade, others stay put; however, even the ones that will be long-lasting will have to evolve in order to grow or to stay effective.

With the disaster of the DotCom bust, we saw how companies that were given a taste of instant success could literally go belly-up overnight. But this type of thing isn’t new. Black Tuesday is still regarded as a day of mourning, with the flag at half-mast for some families, and the California Gold Rush left many people devastated, broke, and homeless. What makes an idea stick, work, and grow for some; while other seemingly brilliant ideas barely even make ripples? Further, what works for one person may not necessarily work for the next guy.

I recently read an article written by Jon D. Markman, who writes a weekly column for CNBC on MSN Money, about three internet companies, Amazon, eBay and Yahoo!, that survived the DotCom bust, and why they could do what very few others managed to do. He also writes how Google, in particular, is extraordinarily vulnerable to the same cataclysmic events that the other ill-fated DotCommers experienced. What separated the survivors from the casualties, and why is Google likely to end up more like the late, busted DotCommers than these survivors?

Markman says, “First, companies that best survived the bursting of the tech-stock bubble were already, or on track to be, the most profitable — signifying that their managers understood their role in the great capitalist value-creation chain.” Technology commentator Mark Anderson, even way back in the 90’s, explained his own skepticism of the many online gimmicks by writing, reminding his readers that the real measure of a company’s success was in its profits. At a time when business success for many pretenders was being “measured in “clicks” and “eyeballs” rather than cold, hard cash,” the words were relatively lost on those that believed that this was the new world order. But, without saying “I told you so,” Anderson really had it right on the money. Companies that lasted were the ones that provided valuable, unique services that motivated customers to pay a premium over competitors’ services.

Second, the DotCom survivors learned how to generate constant revenue streams, and not relying solely upon a single source of income, Markman implies; meaning they didn’t keep all of their eggs in a single basket. So what do these survivors have that Google doesn’t?

Markman writes, “Its greatest asset is its greatest weakness: its engineers developed a world-beating search engine algorithm and Web interface, and its marketing team developed clever ways to monetize it through the sale of contextual advertising links. Its purity, however, has left it looking increasingly like a one-trick pony. Search is not a particularly difficult computer engineering task, and while it may be popular, there is no community that compels users to habitually use Google search. In a nutshell, there are no barriers to entry. A couple of kids at a Shanghai university could come up with a better search method tomorrow, and tens of millions of users around the world could switch to it from Google within a week.”

“It’s cool, but you can’t defend it,” Anderson says. “It is the most vulnerable high-capitalization company in the history of the world. Even in 2000, there was no company with more risk per dollar of market cap [than Google].”

After going public just over a year ago, Google’s stock has been trading at an average of $117.80 – $319.22 per share over 52 weeks. But even Google cannot keep up that pace forever. During the DotCom Bust, another survivor, Amazon.com, still almost didn’t make it. But because of its frugal money management, it managed to be spared from the fate of the other DotCom casualties. Even eBay and Yahoo’s careful corporate spending has been a consideration here. But Google spends heavily on employees’ salaries and benefits, headquarters, and even other perks, like meals. There is even a colloquial expression, “Google Lunch” that means “over-the-top-spending,” in parody of Google’s deep pockets.

My motive for bringing this up is simple: if Gross is correct yet again in his internet advertising model, Google could be in for some serious trouble if they can’t roll with the punches. After all, nothing lasts forever; especially when that something was almost an instant, overnight success with something as fluid and ever-changing as the internet. But what would it take for a search engine like Google, who relies so heavily upon PPC, its AdWords revenue, to completely switch gears and take on a new business model? Would it even be possible? Unfortunately for Google, they would have to find a way, because it would require a complete remodel of their program. This could be very expensive, and will take a substantial amount of time and effort.

While no one can be sure what the future of PPC may hold, and anyone can have their own speculations and predictions of what internet advertising could be in another five years, one thing is clear: Google will have to make some kind of change, and anyone else that relies so much upon the PPC model. If not now, then they will definitely have to at a later date; not so far into the future, I fear. The change could be as simple as finding other streams of revenue, or it could be as extreme as discarding the model for an entirely different one. Once advertisers understand that they don’t have to pay for unqualified clicks, of which up to 20% could be fraudulent, you better believe they will want to make the jump, and move on to what would be better and smarter advertising for them.

The job will be far easier for the webmaster with the single or the handful of sites to manage, namely, because he or she probably does not rely solely upon advertising revenue from PPC; nor will it be such a monumental job that Google, Yahoo, or any other PPC revenue-dependant company, would have ahead of them.

While Gross’ goal isn’t for Snap to beat Google, he is hoping, however, to provide a viable alternative to PPC programs like AdWords. This is because he believes PPA could prove to be a better solution for advertisers, without having to deal with the throw-away expense of unqualified traffic or click fraud. Unfortunately, as far as Google, or any other advertiser platform, is concerned, click fraud actually does benefit them in the end. I’m not saying they are dragging their feet; but it would behoove advertising arenas to make it safer, and more profitable, for advertisers. After all, if advertisers see their ROI continue to drop, then chances are very good that those advertisers will search for alternatives to PPC. Still, Snap has a way to go to overturn the current model, and I’m certainly not saying it will be easy.

It truly is in Google’s, Yahoo’s, or AOL’s best interest to eliminate the obstacles for the advertiser if they hope to keep advertisers’ business long-term. It will be within the ability to submit to and implement changes that are best for the customer that will allow these companies to ultimately survive. To rest on your laurels in the internet advertising world is a quick death, indeed, even for Google.

Google+ Comments

Google+ Comments