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Google to switch from PPC to CPA?

Posted by Michael Bloch in ecommerce (Wednesday June 28, 2006 )

There’s been a few rumors flying around that Google might be preparing to kill off PPC (Pay Per Click) in favor of PPA (Pay Per Action), aka CPA (Cost Per Action/Acquisition). By CPA/PPA, this means an advertiser pays for completed sale or a signup for a newsletter etc. instead of each time their ad is clicked.

If this is true, then in terms of revenue share with publishers, AdSense would become a standard sort of affiliate program arrangement; a model that most of us who have been involved with affiliate marketing for some years would be very familiar with. It’s a model that’s been around since 1996, long before PPC made its appearance. A visitor clicks, a cookie with a lifetime of X days containing the referring affiliates id is placed on the visitors system, if the visitor buys a product within the lifespan of that cookie, the referring affiliate gets a slice of the sale.

Google has recently been running CPA beta testing with some AdSense publishers. I received an invitation, but decided not to join at this stage. I’m in a “if it ain’t broke, don’t try to fix it” sort of space with AdSense right now; I’m happy with its performance as it is :).

While the demise of PPC AdWords is certainly only a rumor and I’ve seen nothing from Google to even allude to this happening, in some ways, a move like this would make a lot of sense.

Can you imagine all the owners of scraper and MFA (Made For Adsense) sites wailing and gnashing their teeth if this would occur? They would soon lose interest in AdSense and many of the spam/scraper sites littering the web would become defunct. These kinds of sites are well known for generating garbage PPC traffic.

Then again, I guess publishers with quality content sites may also find themselves in the same boat as well; although if there’s less spam/scraper sites, that means less garbage in search engine results pages which should mean more representation in results for quality sites. More traffic, more clicks, more sales.

Where a CPA arrangement such as Google is trialing certainly makes sense is mainly for the advertiser – they would only have to pay on completed sales or actions and click fraud will become basically non-existent. Perhaps the only other added cost to the advertiser would be a monthly management fee, which is not uncommon in traditional affiliate networks.

If current click fraud and garbage traffic clicks are so rampant as many industry commentators would have us believe, while the advertisers may love the CPA idea, I believe a switch to this model would have a serious short term negative impact on Google’s bottom line as well for 2 reasons:

a) loss of revenue from low quality clicks
b) publishers switching over to other networks still offering PPC revenue share

But if CPA based contextual advertising proved to be effective for Google, then the other networks would most likely follow suit within a short time. Still, the short term losses would be quite a tricky issue given that the Mighty G now has those horrible creatures called shareholders – who certainly aren’t known for their patience.

Maybe the pressure of click fraud and low quality clicks is becoming too huge an issue and perhaps the CPA/PPA trials at this time are just running to determine how much of loss of revenue, if any, would be involved if Google were to totally switch over to this model.

Another issue would be quality control. If Google were to offer CPA broadly, there would be literally hundreds, perhaps thousands of merchants wanting coverage for certain keywords in Google’s SERPs and on publishers sites. This is where Google would need to select only the merchants who were high converters, helping to ensure that they and AdSense publishers had top quality offers being displayed. How that selection process would work is another story :).

The other interesting aspect and unknown element in all this is the soon to launched “GBuy” or “Checkout” – Google’s payment processing service. According to some reports, Gbuy icons will be embedded into participating merchants Adwords ads. As mentioned in a previous post, GBuy certainly has the potential to become real competition for PayPal quite quickly given the company’s high profile.

Between a PPA/CPA Adwords model and GBuy, Google would become a *very* serious player in ecommerce generally, not just search. Everything a merchant would need would be rolled into one service; and provided (I assume) at minimal cost. The ROI could be very attractive.

Imagine the impact of an all-in-one service having on a variety of other providers as well; we’re not just talking PayPal/eGold here, but also affiliate advertising networks such as Commission Junction – it could be a major threat to their operations.

Let’s take it a step further – between Adwords, Google SiteMaps, Google Analytics, Google Trends and Gbuy (or CheckOut), the amount and quality of data that Google would accumulate on the activity of users throughout the search/browse/purchase process would be quite staggering. Information of that nature big companies would pay huge bucks for. Enter Google Research – that would then have companies such as Nielsen Netratings and Forrester seriously shaking in their booties :).

I do seriously doubt whether we’ll see the end of PPC contextual advertising anytime soon, there’s just way too much money still to be made there, but nevertheless, all these services and testing do point towards the fact Google’s reach in the online world is by no means close to plateauing. If anything, this steamroller is only just warming up.


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