Google's Pay-per-action Announcement

Greetings search enthusiasts. Big news from Google - they've launched the beta version for their new pay-per-action advertising pricing model. It's being tested in US-markets only and is available through the existing AdSense network. The implication here is that Google would be open to a significant change in business plan should this pay-per-action be a resounding success.

Google's pay-per-action (or "CPA" cost-per-action) appeals most directly to the advertiser, traditionally the bearer of click fraud's brunt. CPA provides Google’s advertisers with the option to assume greater control over advertising budgets through a sense of advertising accountability. Advertisers can predetermine what action end users must satisfy in order for them to make good on payments to the publisher network. This is in stark contrast to the traditional cost-per-click model that's made Google into the behemoth we know it as today.

Many are praising Google on this, and perhaps this beta test is a direction Google felt compelled to explore at some point. Existing faith in Google’s main revenue source has matured somewhat. In 2005, 35% of pay-per-click advertisers indicated an increase in the amount of pay-per-click budget; this number went to 49% in 2006. This suggests several things: to start that pay-per-click may be growing less effective as web users become more web-savvy, secondly that the gross number of PPC advertising may be leveling off, and lastly that now is the time to explore other forms of search advertising.

While it’s not difficult to discern the “why” of Google’s pay-per-action initiative, the latter should be especially noted as a distinct departure from business as usual for the Mountain View, CA search engine. For the first time Google is addressing a major concern of the advertiser regarding the sometimes unreliable click. Grumbles over advertising risk with tough-to-track clicks have rarely been addressed; and even when they have been, it’s only been in a cursory manner.

Google is not saying outright that pay-per-action is in direct response to the specter of click fraud, but it’s likely that this beta effort could serve as evidence against charges that the company does little about the problem. Said one Google product manager, “we didn't think of it in the scope of click fraud at all. This was purely in response to what advertisers told us." That’s a smart line for the company to take, speaking to the needs of its advertisers and not the complaints of critics.

Now Google takes on some inherent risk in possibly alienating publishers who choose to run CPA. If a publisher within Google's AdSense network is having trouble generating "action" from web visitors, then payments will not be forthcoming. Why would a site happy with PPC take this risk on?

There are other “X-factors” in Google’s pay-per-action endeavor. The PPA concept is not new. Traditionally it is the turf of specialized affiliate networks, but Google's heft has no precedent in this space. Note that Google’s advertising and affiliate networks are two different animals. Affiliates exist largely to sell product and existing affiliate methodology serves as efficient means to do this; meanwhile pay-per-click advertising, the sort which Google excels at, has been a passive and seamless application to websites that focus on content. Google’s AdSense has been a treasured resource for webmasters who only wish to create great content and not worry about advertising. Being an affiliate will not appeal to these folks and Google will have a heck of a time trying to successfully pitch the idea. Publishers are used to Google being a largely non-intrusive source of revenue. The problem is that Google can’t remain that way while being an effective affiliate facilitator. In other words, this might not work – but that’s why it’s “beta”.