Google recently announced a beta version of its long-discussed Pay Per Action (PPA) model. Here’s the description from Inside Adwords:

Pay-per-action advertising is a new pricing model that allows you to pay only for completed actions that you define, such as a lead, a sale, or a pageview, after a user has clicked on your ad on a publisher’s site. You’ll define an action, set up conversion tracking, and create ads that publishers in the Google content network can then choose to place in new ad units on their site.

Andy Beal thinks that the development of the PPA beta represents a serious threat to the affiliate networks such as Commission Junction and Linkshare.

A lot has already been said on this announcement, so we won’t spill more much ink. But a few items are worth commenting on:

1. We agree with Andy Beal that this development will challenge the affiliate networks. But don’t underestimate their ability to adapt and refocus their efforts on value added service that Google probably won’t provide.
2. CPA is only being offered on the Content Network on a limited basis. It’ll take some time for advertisers and publishers to figure out the nuances before they can make a significant commitment to the new model. Until then, CPC will continue to be the dominant component of advertising & probably for years to come.
3. For more sophisticated advertisers, there’s really nothing new in a CPA model. If you advertise with a CPC model, you already have an implicit CPA based on your CPC conversion rate (even if you don’t realize it). If you’re tracking your sales down to the granular, profit level, then you can and should be deriving the CPA you can really afford, in addition to managing your spend by profitability.
4. If you choose a CPA based on percentages, a retailer with higher average sales prices will, all things being equal, always rank higher than you.
5. If you choose a straight CPA based on sales, then you’ll still have to account for a variable profit margin. If you’re not tracking your sales back to your keywords, you won’t be able to determine which keywords deliver the best orders.
6. We believe CPA will help many advertisers who had to abandon the content network due to low quality traffic. The CPA model will help them get back into the content network, but they will require detailed tracking to determine which CPA type works best for their mix of products and services and their average sale price and actual profit per order.
7. We also like CPA for lead generation, but as with any lead gen activity, you MUST have a system that can track off-line conversions. Without the connection to an off-line sales system, you won’t be able to accurately assess the quality of the leads being delivered through CPA ads.

This entry was posted on Friday, March 23rd, 2007 at 11:09 am and is filed under Affiliates, All Blogs, PPA, PPC. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.