Does CPA Add Up To Trouble?


News is flying across the blogosphere that Google is testing a new advertising program based on "Cost Per Action" or CPA. The implications are potentially enormous.

In the current model popularized by Google, both Google and its publisher affiliates get paid when a user clicks on an advertisement. It doesn't matter if the user does anything more than click; Google and its affiliate publishers still get paid. There are two main flaws with this model. First, advertisers who think they are so clever because they are "paying for performance" often find they rack up big bills with little to show in the way of increased sales. Second, the model is wide open to fraud.

This new CPA model addresses both these issues. To get paid, the user will not only have to click-through, but take a specific next step such as registering, requesting more information or making a purchase, all in the same user session. It's virtually fraud-proof, but the message it sends to advertisers is something of a two-edged sword.

The first is that clicks alone don't count. That’s wonderful news for smaller, focused B2B sites with real, repeat traffic from qualified users interested in a specific industry or topic. It's bad news for those who have gotten good dragging vast numbers of visitors to their sites by hook or crook.

The second message is that it is now okay to pay only when something concrete happens. Google's huge success with pay-per-click advertising revolutionized the advertising business by forcing inappropriate ROI metrics onto advertising, and shifting advertising risk from advertiser to publishers. Well before this Google test, we detected a distinct trend among advertisers to ask for the logical next step in this progression: pay-per-sale. Google will now be teaching advertisers that the smart way to advertise is to only pay when something happens. What "something" do advertisers want most? A sale, of course. This could easily get out of control.

It may have been fair to re-balance advertising risk between advertiser and publisher a bit, and pay-per-click did just that. But pay-per-sale goes too far. Can any publisher build a business that depends on the ability of the advertiser to close a sale? What if the salesperson is the slacker son-in-law of the owner? Do we only get paid if he decides to show up to work, actually responds to an inquiry in a timely fashion, can make a coherent sales presentation, and is able to offer the right price and terms?

If CPA takes off with advertisers, and I think it will, we have to watch it closely. If it remains limited to publishers getting paid (hopefully a lot) for generating hard sales leads, that's one thing, and a number of us could do quite well in this environment. If it morphs (as I predict it will) to advertisers demanding to pay only when they make a sale, we as an industry have to draw the line. The purpose of advertising is to stimulate interest, not guarantee profits.

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