Google Opens Performance-Based System to Qualified Ad Buyers

Mortgage lenders, auto dealers, retailers and even mom-and-pop advertisers reliant upon customer leads have another way to advertise through Google. The company planned to open its pay-per-action (PPA) AdSense beta to qualifying advertisers worldwide today, following a three-month closed trial period. The service threatens other pay-for-performance affiliate networks like ValueClick’s Commission Junction and LinkShare, and could coax budget-minded and click-fraud leery advertisers to use Google more often.

The PPA service requires advertisers to pay only when users perform a specific action, unlike Google’s popular pay-per-click option which charges advertisers each time a user clicks on their ads. Advertisers can set up different payments for different actions; for instance, a loan consolidation company may pay a higher amount for a customer acquisition than for e-mail address collection. The ads can be text, images or hyperlinked in-line text ads, and are placed using a separate system from Google’s cost-per-click (CPC) and CPM-based systems.

Google AdSense already has a PPA-based referral program in which site publishers are paid for referrals to Google services. “We wanted to expand this to offer to every advertiser,” said Google Product Manager Rob Kniaz.

Advertisers that have implemented AdWords conversion tracking and garnered over 500 conversions from CPC and CPM campaigns in the past 30 days will be eligible to use the beta service. Once eligible, an advertiser won’t be kicked out of the program, said Kniaz. So far, advertisers including executive jobs site have tested the service. Google would neither name any other advertisers nor names of publishers in the trial.

Publishers in the AdSense network can search for available CPA ads and review them before choosing whether they want to accept them for placement on their sites. The PPA ads will only appear on AdSense publisher sites, not in Google’s search results, as CPC buys do.

Some believe the pricing model will reduce the impact of click fraud since PPA ads won’t fall prey to automated bots designed to click ads to boost keyword prices or generate more revenue for AdSense publishers. Instead, an actual action must be performed by the user in order for the publisher and Google to be paid by the advertiser.

“It answers that concern for some advertisers,” said Greg Sterling, founding principal of Sterling Market Intelligence. However, the new option may not significantly lessen the click fraud scourge.

Most likely, suggested Sterling, Google has introduced the PPA option to grab some of the dollars flowing through pay-per-performance affiliate networks like Commission Junction. “This is Google wanting to get a piece of that,” said Sterling, noting he doesn’t think Google’s PPA business will cut too deeply into that of Commission Junction’s or other affiliate networks.

Jeff Molander is less hopeful for other affiliate networks. “No matter how you do the math this isn’t good for the Commission Junctions of the world,” said the CEO of affiliate marketing consulting firm Molander and Associates. He thinks Google’s recognizable brand and wide distribution will offer advertisers “tremendous scale” that other performance-based networks won’t be able to compete with.

Molander also believes the new service will attract small and medium size companies that may have had less success using cost-per-click, or considered CPC too risky or costly. Some advertisers haven’t found it worthwhile to try Google’s CPC offering at all, he said, adding, “But will they pay on an action? Absolutely.”

ClickZ columnist Kevin Lee, executive chairman and co-founder of search marketing firm, isn’t so sure the new service will bring in big bucks for Google. “I don’t think it’s going to be a big chunk of [Google’s] business,” he said. Lee believes Google’s system automatically serves the ad that will garner the most money for Google, so if CPC ads are more likely to be clicked, they could be served in lieu of potentially-costlier but less-clicked PPA ads.

Lee conducted tests of the service for two advertiser clients a couple months ago with lukewarm results. “In the tests we’ve run, we didn’t find that it got much volume at all,” said Lee, whose clients were running lead generation and customer acquisition campaigns for the trial. “Our thought was really what we predicted: that CPC ads actually earn Google more money than the CPA ads, and so the ad server just automatically runs the CPC ads instead,” he said.

Google would not reveal the number of impressions served in the limited beta period, but Kniaz stressed the amount of available inventory, as well as advertisers using the service will increase as new publishers and advertisers join. “Because publishers do choose the ads specifically, clearly the volume of the beta is less than what you’d expect from the Google AdSense network…but by growing the beta, it will improve both sides of the equation,” said Kniaz.

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