Today, Google announced a new advertising format called Pay-per-action. I’ve always referred to this as CPA or cost-per-action.
What Is It?
This is going to be a major deal in online advertising from both the publisher and the advertiser perspective. Google advertising has always worked on a CPC (cost-per-click) basis where the advertiser would pay when a user clicks on their ad. With this new model, the advertiser will only pay when the user does a certain action, like filling out a form or buying something. In this new model, it does not matter how impressions or clicks are generated from the ad, as no payment is due until the action is completed. Some of the actions would be:
- Site interactions/pageviews
- Sales (always the same value)
- Sales (% of sale with many different sale values)
I have signed up to be a beta tester with my automotive site, ActiveTuning, as we currently use AdWords for part of our advertising budget. I haven’t decided how I’ll use it, but as of now I’m thinking that I will be looking for sales as well as leads/site interactions. I’ll use the leads for a scenario where a user will get as far as adding a product to their shopping cart, but may not necessarily go through the entire checkout process. It will definitely be a new world in terms of tweaking and playing around with different formats to see what works the best. Hopefully I am accepted as a beta tester.
Conversions would be tracked by using Google’s conversion tracking.
Making It Work
PPA works, and if optimized correctly can make much more money. An advertiser is willing to pay more for an action rather than a click because they can pre-formulate the ROI (return on investment). For example if I have a product that costs $100 and my cost is $60. I know I have up to $40 to play with before I start losing money on the product sale. Rather than pay $1/click where maybe the ratio of clicks-to-sale end up being $20 and 20 publishers essentially made $1…I’d be more willing to pay $10 to one publisher to generate that same one sale.
The problem is actually making it work. What I mean by that is making an ad that is just asking to be clicked so that as a publisher you can actually provide leads to advertisers that convert. The best way to do this is not by your regular banner ads, but by highly targeted in-content ads. For example if I write a review on a digital camera, a link in the review directly to a vendors product page that sells the camera will more than likely have a high sales conversion rate.
This is where Google’s new ad format called “text-link ads” comes in:
What is the text link format for pay-per-action ads?
Text links are hyperlinked brief text descriptions that take on the characteristics of a publisher’s page. Publishers can place them in line with other text to better blend the ad and promote your product.
For example, you might see the following text link embedded in a publisher’s recommendatory text: “Widgets are fun! I encourage all my friends toBuy a high-quality widget today.” (Mousing over the link will display “Ads by Google” to identify these as pay-per-action ads).Though the maximum length of a text link is 90 characters, we’ve found that shorter links perform better because they allow the publisher use the link in more places on her/his site and in different context. The maximum length is 90 characters but less than 5 words is best. Even better, just use your brand name to offer maximum flexibility to the publisher.
This new format will really help out in terms of making PPA successful for the advertiser, publisher, and ad network (Google in this case). It will be interested what other ad products come out of all of this.
Thanks to Michael Arrington over at TechCrunch, as his post made me aware of Google’s announcement.