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Google's CPA Trials: Right for You?

  |  March 23, 2007   |  Comments

Issues to consider when deciding whether to opt into Google's CPA test.

Google finally made its CPA (define) advertising trials public. These have been rumored for some time and known about by those involved in alpha and early beta testing.

Before you decide you no longer need to pay attention to your existing campaigns, Google is only testing CPA on the AdSense content network, not on search results. I don't think CPA advertising will be a home run for Google, but because it's rolling out this program with an entirely new ad format publishers can select, the downside may be minimal for some advertisers. Today, I'll cover some issues to consider when deciding whether to opt into the CPA test.

If you currently manage campaigns on a CPA objective and don't use the Google contextual network because of click quality or click fraud concerns, a test will at least help expose a possible opportunity for performance-based incremental leads or orders. However, there are risks associated with all CPA deals. In Google's case, these risks are unique. I'll get into those risks shortly.

The first thing to understand about a network that sells CPM (define), CPC (define), and CPA advertising simultaneously is the ad server deciding which advertiser to select and which ads to display always makes those decisions to maximize revenue. This means the ad server uses statistics and probabilities to determine which billing method will generate the highest predicted earnings for the publisher (and network).

CPM-based advertising offers the publisher and network the lowest risk. As the page impression happens, the billing software records that impression's cost to the advertiser.

CPC advertisements require the ad server understand the predicted CTR (define) on each ad that might be placed in that particular placement. (Note: behavioral ad servers also factor in the individual when selecting an ad). Google reminds us that as an ad's relevance to an individual increases, so does the likelihood of a click. So when the server chooses between a CPC and CPM ad, it multiplies predicted CTR with the CPC bid to get an effective CPM. The ad server then picks the higher number.

The ad server's CPA calculations have an additional step. The ad server must use not only the predicted CTR but also the predicted conversion rate. Again, it's all gets translated into an effective predicted CPM.

This overview is important because your target CPA and your site's ability to convert traffic affect the willingness of a smart ad-server system to show your ads at all. The higher CPA you select and the better your site is, the more impressions the smart ad server allocates.

Before giving Google your CPA offer, consider these questions:

  • Are all competitors in your industry managing purely on CPA, and do they bid accordingly on a CPC basis to reflect that CPA?

  • Does your site convert better than your competition's?

  • Will there be significant inventory in the Google ad network where your CPA ad and offer will generate a higher predicted eCPM than the competing CPC or CPM ads?

Conversely, if any competitors factor in early buy-cycle shopping, the branding impact of site visits, or conversions that are untraceable (e.g., those beginning with a search on one computer and consummated on another), then giving Google a CPA offer to run makes little sense because Google's ad server will always select your competitor's ad above yours.

If a test makes sense, given your current campaigns and competitive set, check out these details:

  • Ad placement. Publishers can place specific pay-per-action ads that are relevant to their sites in special CPA ad units on their pages.

  • Ad format options. Standard text ads and image ads are joined by a new text link ad format. The ad formats are "brief text descriptions that take on the characteristics of a publisher's page." Unlike prior ad formats, the new JavaScript-based ads will display like regular hyperlinks. Publishers can embed them in copy.

  • Pricing. CPA actions can be defined as any action you want, including orders, leads, and even specific page impressions. You have to use Google's conversion tracking on the thank-you pages of the actions you wish to promote. That's one more pixel to add to any campaign management or affiliate program pixels you may have in place already.

U.S. advertisers are invited on the Google AdSense Blog to submit their information to be considered for inclusion in the program on a rolling basis.

Some risks to be aware of are:

  • Double counting: There's a significant risk of double counting, such as with a CPA network using its own conversion pixels (including affiliate networks). What happens if someone arrives through a Google CPA link and a day later arrives through an organic search listing or a LinkShare/Commission Junction affiliate link? Google takes credit for the sale, and so does your affiliate network.

  • Poor publisher acceptance: Publishers are sometimes reluctant to take CPA ads, particularly from an unknown advertiser.

  • Distribution: Your CPA may be too low to get significant distribution.

Google's CPA experiment may be a success or an exercise in futility. You just need to decide if you want to be one of the first to join in the experiment.

Meet Kevin at Search Engine Strategies April 10-13 at the Hilton New York in New York City.

Want more search information? ClickZ SEM Archives contain all our search columns, organized by topic.

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Kevin Lee

Kevin Lee, Didit cofounder and executive chairman, has been an acknowledged search engine marketing expert since 1995. His years of SEM expertise provide the foundation for Didit's proprietary Maestro search campaign technology. The company's unparalleled results, custom strategies, and client growth have earned it recognition not only among marketers but also as part of the 2007 Inc 500 (No. 137) as well as three-time Deloitte's Fast 500 placement. Kevin's latest book, "Search Engine Advertising" has been widely praised.

Industry leadership includes being a founding board member of SEMPO and its first elected chairman. "The Wall St. Journal," "BusinessWeek," "The New York Times," Bloomberg, CNET, "USA Today," "San Jose Mercury News," and other press quote Kevin regularly. Kevin lectures at leading industry conferences, plus New York, Columbia, Fordham, and Pace universities. Kevin earned his MBA from the Yale School of Management in 1992 and lives in Manhattan with his wife, a New York psychologist and children.

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