Wednesday, March 21, 2007

Google and Pay-Per-Action Ads

Google's going to try out a whole new style of AdWords measurement. According to an article in Business Week today, Google's pay-per-click model would be supplemented with a program under which advertisers will pay only when a click on an ad results in a particular action (i.e., a sale, or a download, or reaching a particular page). Pay-per-click meet your cousin: Pay-per-action.

Rather than the auction style they use now, where the advertiser who pays the most per click shows up first (and the web publisher has no control over what ad shows up on their site), the advertisers under this model would offer a price they were willing to pay for an ad and what the "action" would be to trigger the payment. The publisher would then pick which ads show up on their site based, I would think, on who is likely to end up paying them most.

Many are saying this is the holy grail of measurable advertising and there are some upsides for advertisers to be sure.

Three downsides though, and they're big ones:
1) The onus for success is no longer on the advertiser, but on the publisher. Now, if you get the eyeballs and can't close them because your website or your product stinks, that's your problem. If you don't close enough sales, you've got to fix it. Under this model, if you don't close enough sales, you don't pay for the ad exposure. The publisher can't close a deal for you, so why do they want to take the "risk" of wasting ad space?
2) Since publishers can choose the advertisers, big name advertisers will be most likely to be picked (because they're least likely to have a crappy business model). This will wreck the current system, which really puts the little guy on nearly even footing with the big guy.
3) While ad costs may jump from say $0.40 per click to $4.00 per action, how does that benefit Google if there are 10x fewer actions than clicks? The money is the same. Google's profit last year was $3.1b. I don't see this plan increasing that figure.

My guess: Google will try it and then abandon it--if they can get away with it politically.