Pay Per Action

So we finally see PPA testing begin, and Google is first out of the gate. Before everyone jumps for joy about the promise of a (potentially) click fraud-free world, let’s consider for a moment what is actually occurring within the Pay Per Action model and the inevitable questions the model raises, in the context of converting directly from the Pay Per Click environment.

First, let’s see how Google describes the test pricing:

“You define a fixed amount that you’d like to pay for a completed action based on the value of that action to your business. You’ll only pay when that action is completed, not for a click or impression. For example, you may wish to pay $1 every time a user fills out a lead form on your site and $5 when a purchase is made.”

With PPC pricing, the advertiser does control the desired per-click amount based on the value of the click to their business (detailed ROI metrics are assumed for this discussion), and the desired spend. The advertiser ideally has a basic conversion metric that sets these budgets and so has an idea of what each “completed action” – a form submission, or a sale – costs them in PPC. The advertiser also has the estimated figure for what they can spend on a completed action, and working with these figures is the art of PPC management.

In their current PPA test, Google is telling the advertiser that the advertiser can use this metric, which we refer to as the advertiser’s Cost Per Acquisition (CPA), to set their “action” price, instead of bid price. Since it is a safe bet to assume that many if not most advertisers spend more than $1 to $5 of PPC advertising on Google to generate a single completed action, we can see that this test is being done at a discount* to test the platform, the implementation, and to see how well the traffic in their network is converting into specific kinds of “actions”. (*Disclaimer: testing on the Content Network arguably creates a lower traffic value, so the perception of the discounted testing is somewhat debatable).

Why is this meaningful?

First, let’s take a look at the data Google will be obtaining from its network of Content Partners. Publishers in Google’s network will receive, it appears, flat rate compensation. In exchange, Google will receive all sorts of conversion information about that publisher’s web site – as well as demographic information about that site’s users based on the actions of visitors clicking out to the PPA ads. While on one hand this sounds promising for the optimization of the ad network, will Google freely exchange this data with its publishers? Food for thought.

Next is the issue advertisers must address if seriously considering moving towards the PPA model – and that is whether or not there can be a comfort zone within disclosing to Google, or any publisher, for that matter, exactly how much an action is worth to an advertiser’s business. And if that action is a sale, then the issue is whether there can be a comfort zone within disclosure of revenue from same.

In theory, it is possible to envision PPA driving the cost of Google advertising up even higher for advertisers than it is now, because although the competition between advertisers will exist much the same as it does in PPC, once Google knows the actual advertiser-specific and industry-specific margins there then exists the distant, but yet real possibility of minimum bid-setting based on this data. Of course Google has done nothing of this kind to date, but there’s nothing like good hard evidence to sweeten the pot ;-).

In the end, will you be converted? Will we? Let’s wait and see.

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