Jumping to Conclusions on Google’s Pay-Per-Action

There are lots of bloggers talking about Google’s launch of their Pay-Per-Action (beta) program which is really just adding CPA ad units to Adsense with a name to not associate it with CPA directly.

My first reaction is that people are jumping to lots of conclusions about what this program means, what it will do, who it’s competing with, and what it will mean for advertisers, publishers, and arbitrageurs.

I was going to refrain from making a post about this until I had really digested it more and potentially even tried out the beta program if accepted, but since Pete Caputa somehow confused me for being smart, I’ll at least post a few thoughts.

CPA is harder on publishers
There’s no arguing that with CPA ads, publishers take all the risk. This is good for advertisers, and generally it’s harder on publishers. However, GOOD publishers who understand CPA, persuasion architecture, delivering users who will convert, and funneling your site correctly, can actually make more money from CPA then they would from CPC or even a flat CPM. Publishers who don’t understand these things and are used the normal Adsense model will most likely struggle to generate more money with this ad type because of the difference in how you monetize a user.

CPA is a different ball game
There is an assumption that this will be a major challenge to affiliate networks like Commission Junction and Linkshare. Maybe it will be, but I can say that these networks provide a lot of value because they help advertisers create the right kinds of creatives and really optimize CPA. How much advice is Google going to really give on setting everything up? How much human touch will they provide to this process? With Google’s program, if the advertiser’s landing page sucks will Google consult to help them improve it? Sure, they provide access to their Website Optimizer Tool, but those who have tried multi-variate testing know that isn’t just a cut and dry automated process like Google is trying to make all of this.

Will this hurt lead generation or affiliate arbitrage?
I’m not sure I care. Businesses need to provide value, and if Google just made it more efficient so that it’s harder to arbitrage stuff, so be it. I’m not necessarily against arbitrage, but you can’t expect companies to leave things inefficient. Arbitrageurs are always looking for an edge, and most likely they’ll still find one somehow and somewhere.

Overall thoughts
Until we see the program in action, see what advertisers succeed with it, and how publishers can work with it and what types of results they get it’s hard to predict what will happen. The general assumption is that since Google has dominated with Adwords/Adsense/CPC they will dominate CPA by adding it to the mix. Well, Google HAS NOT dominated CPM and display advertising when they added it to Adwords/Adsense. I don’t think it’s a given by any means that this will work as well, however I do give it a better shot. I think the CPA direct marketing advertisers are closer to being the same group that does well with CPC now, while flat CPM and display advertising tend to be a different type of advertiser. It will be interesting to watch.

  • http://www.grokdotcom.com Bryan Eisenberg

    Pat,

    Thanks for being a sane voice in the land of the Googlovers. I am not so sure I stand with Steve Ballmer, that they are a one trick pony, but all the added value the other CPA providers like LinkShare and CJ provide are necessary. As you and I know, most sites still struggle with converting visitors. Once you get good enough at converting visitors it is almost always more effective to buy CPM based on a lower price to your normalized cost per action. CPM are much easier to negotiate and like you said less risk to the publisher. There are not many publisher that are fond of risk.

  • http://worcester.typepad.com/pc4media Peter Caputa

    Good to get your feedback, Pat.

    I see an opening for this program to work in some very underserved markets. There are a lot of small businesses that have no clue how to make affiliate-marketing/lead generation work for them. They also don’t have the cash [flow] it takes to invest in getting a CPA program up and running with a company like cj or linkshare. Yes, I know it’s only a few $k, but that’s a big barrier for a small business. Even if they do have the $ to invest, they probably have to hire someone full time to sit and optimize creative and recruit affiliates. I know that cj and linkshare have a pool of affilate publishers, but the publishers have to be persuaded to try it. Even if a small business can afford to hire someone to manage their program and invest to get it up and running through a network, it’s also not easy to find an affiliate marketer that is good at making it all work. It’s certainly harder than hiring another saleserson to call on accounts. And that’s the decision that most small business owners have to weigh: Where do I spend my incremental resources to bring me more ROI. Affiliate networks are not the usual answer.

    In conclusion, there’s a big barrier to entry.

    That said, these same small businesses have very high value transactions. I have some clients that can make a $50,000 sale to a small business owner w/ a 70% margin. Wouldn’t it make sense for them to pay $500/lead if they knew that 1/20 would convert? Yes. Wouldn’t it make sense for a blogger to run a link for that? Especially if they knew they could reach the audience. Now. What if that didn’t require any up front investment, little creative work and only a few clicks for the publisher to run it? I’d say that google COULD significantly lower the barrier for this.

    Of course, I haven’t gotten in yet. Waiting for my invite. There’s a lot of factors, of course. I am sure they’ll make it easy and automated to use for the advertiser. The question will be: how easy do they make it for publisher to manage risk? And how many publishers will take on CPA deals? With

    conversion data, I don’t see why Google wouldn’t eventually manage the risk, instead of placing the burder on publishers. They’ll know which sites send visitors that convert and they’ll know the rate and the amount it generates. It wouldn’t take much for them to compare an eCPM from a CPA or CPM deal and choose the right ad to run.

  • http://www.thoughtshapers.com Jeff Molander

    Pat…
    You’re right, there are many who are jumping to conclusions and making bold, baseless statements. Then again, this IS “blogging” isn’t it :)

    My favorite thus far has been “this validates us!” What’s more pathetic than a pity party? More importantly, why is affiliate marketing both loved and loathed by the same people at the same time?

    I don’t speak out of turn on things that I don’t know about and if there’s one thing I’m well versed in it’s the traditional (CJ, Performics, Linkshare) “affiliate marketing” industry. That stated, I disagree with you in that these networks act as agencies and provide similar value. They do NOT do much for advertisers — they don’t optimize and, no it’s not “all about relationships.”

    (why do you think they plaster that trite nonsense all over trade mags, conferences, etc. etc.)

    This gets to the love-hate relationship advertisers have with affiliate networks and the traditional affiliate marketing infrastructure.

    It’s not about relationships. It’s about scale. Advertisers don’t want or value relationships. They want to scale up their CPA affiliate programs and have found, in recent years, that they cannot. Why?

    Let’s consider why advertisers get involved in affiliate marketing. In my experience, it’s “pure performance based” (at face value, not in practice) — risk free. Secondly, it’s about scale. At face value a “network” inherently provides scale yet what have advertisers managed to extract in terms of scale after launching an affiliate program?

    I can confidently say that retailers in particular have extracted next to nothing — the network is stagnant and, in fact, becomes more difficult to manage (“network quality”) as time goes on given affiliate networks in-ability to innovate and provide useful tools (affiliate communications), share best practices (i.e. how to choose/judge appropriate affiliates, eliminate or curb fraud, etc.)

    Enter Google — King of what? That’s right, King of Scale. Who needs transparency and “relationships?” I suggest advertisers don’t need it much beyond what they’ve already extracted.

    This gets to incremental sales.

    Fact: outside of search (which advertisers are now taking back as their own… taking it away from affiliates), affiliate networks don’t have anything to offer beyond incentive shopping (coupon, loyalty/points/miles/cash back that send predominantly repeat customers) sites and occasional access to low converting, un-targeted remnant inventory.

    Affiliate networks have evolved into becoming sources of transactions that are going to happen anyway (without their/affiliates involvement) and advertisers understand this.

    Again, incremental sales/leads. Where do advertisers get more of them? Search — namely, Google and traditional shopping comparison engines.

    Google’s entering into CPA is highly disruptive in the long term. It’s a threat to so-called “CPA networks” and anyone (i.e. affiliate networks or agencies who buy CPC/CPM via Google and play it against a CPA) who actively arbitrage Google’s inventory itself. Google is, ultimately, going direct. It’s not going to cave things overnight but it will force massive change.

    Finally, one thing that I’ve not heard anyone discuss (yet) is how Google is positioned to blaze the “hybrid payment model” trail. This now positions them perfectly.

    Indeed, who cares if it makes it difficult for lead generation arbitragers. It’s called evolution/maturation of our market. Who will survive? Those who have worked on creating native traffic to their properties (i.e. companies like Marchex and AllStarDirectories).

  • http://www.thoughthshapers.com Jeff Molander

    Pat…
    Sorry, too many americanos and interruptions. Not enough linear thinking.

    My above comments were overly verbose and one was off-target in hindsight.

    Google is diversifying its payment offering (now they offer ALL forms of “performance” ads) and continuing to respond to a market that places more value on scale, less on transparency, accountability. Simple.

    You’re right… (I’m wrong) affiliate networks DO provide assistance to advertisers to enhance and optimize response/conversion. My comment suggesting that they don’t was improperly influenced by my observation on advertisers not much caring about investing in optimization (which they should). They’re more interested in getting a quick fix courtesy of scale.

    Advertisers, IMO, are making a mistake and should be reading Bryan’s books… learning and internalizing these skill sets — building an e-marketing/advertising knowledge asset.

    Once you get good enough at converting visitors it is almost always more effective to buy CPM based on a lower price to your normalized cost per action. CPM are much easier to negotiate and like you said less risk to the publisher. There are not many publisher that are fond of risk.

    Words of wisdom and experience.

  • http://www.conversionrater.com/ Pat McCarthy

    Great points by both of you guys. Thanks for contributing some insights to this blog!

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