Let’s be clear: PPC (define) advertising saved the online advertising industry.


In 1998, IdeaLab’s Bill Gross took the stage at the TED Conference and showed off, a revolutionary search engine where advertisers could pay — yes, actually pay money — to be listed near the top of SERPs (define). I don’t know if Gross was laughed off the stage, but at the very least, he was derided. soon changed its business model. It went from operating a destination site to providing paid listings to other search engines under the new company name, Overture. All this activity attracted the attention of Larry Page and Sergey Brin, who were trying to figure out how to make money with their clever, quirkily named site. Google lifted the model, but made a few extraordinarily important changes (more on that later) and off they went. Overture was bought by Yahoo, and Microsoft suddenly realized it had missed yet another boat, causing all sorts of chair-throwing excitement in Redmond and the eventual launch of AdCenter.

Back to the industry-saving part. When the PPC model debuted, we were still in the run-up: online ads were touted as amazing and were priced accordingly. Agencies got rich from creating and placing online ads that were becoming increasingly complex. But not increasingly effective. Within 18 months of Gross’s announcement, the online ad industry turned downhill, sprinting for the bottom. Marketers abandoned online like it was the Zone diet, and a whole lot of interactive agencies found themselves with nothing left to do but hand out pink slips.

And then we had PPC. The once-laughed-at model suddenly seemed to hold promise, not just for search guys but for all of us. Suddenly, we could look a marketer in the eye and say, “We’re so sure interactive is the right way to advertise your product, Mr. Marketer, that we’re willing to take all the risk. Ha-ha!”

OK, this wasn’t exactly what we’d signed up for. It wasn’t rich experiences and breakthrough creative. But it was something. It kept us involved. And a whole lot of AdWords ads were purchased as insurance policies. Agencies figured if they got a miserable CTR (define)on the display and rich media stuff, at least they’d be able to show the client results from search ads.

It did. PPC was a lifeline thrown to the industry at just the right time.

Now What?

Did that sound like a eulogy for PPC? In a sense, it is. I’m not crazy enough to believe PPC ads will go away, be it for search, contextual, or affiliate. Shoot, I just bought a bunch of PPC ads this morning. But this bright star of the online advertising universe is starting to fade a bit.

The first big hit PPC took was click fraud. Click fraud is a problem, but it’s manageable. The very structure of a PPC system — where everyone watches her own performance — means everyone is a cop. The systems can easily be corrected to not charge when fraud has been proven. People have had big fights about click fraud, for sure, but that’s a customer service (and management) problem, more than a technology one. But the perception of the threat is still enormous, and it won’t go away. Marketers are forced to be more careful and watchful than they want to be, and, if nothing else, being careful and watchful is time-, resources-, and dollar-intensive.

Restrictions placed on PPC ads pose a greater issue. In a PPC system, when an ad shows no real value is generated, there’s only potential revenue. It’s a publisher’s fiscal responsibility to try really hard to turn potential into real. Google rocked the world by investing deeply in ensuring the right ad gets shown at the right time. Google’s thoughtfulness around yield management made the basic GoTo model really work.

What’s critical to this success is the publisher must greatly restrict the ad’s contents. Imagine if, rather than text ads, the search engines served graphic ads, totally under PPC terms (this happens already to a degree). What if the top bidder puts up an ad that has white text on a yellow background? Illegible, non-clickable, non-revenue generating. Even Google with its advanced yield management system, which would assumedly shuffle this ad off to the netherworld, almost completely relies on simple text ads. The reason is the publisher needs to maintain control if it’s going to adopt risk.

Our market has begun to return to us. Rich media ads, video units, and even simple banners that are very well targeted are getting excellent results. Plus, we’re beginning to understand the value generated when a consumer sees an ad online but buys elsewhere. Bottom line: that pitch where the publisher says, “I’ll take the risk” doesn’t resonate nearly as much as it did in 2001.

Evolution to CPA?

It’s long been assumed that PPC is a stopping point on the way to CPA (define) advertising. In particular, advertisers only pay when a purchase is made. Microsoft just bought a shopping search engine called, which boasts a CPA ad model. Google’s Checkout remains a bit of an enigma in the market (does it want to be eBay?), but it certainly gives Google a CPA model.

The writing seems to be on the wall for PPC — and it doesn’t necessarily say, “So long, and thanks for all your hard work.” But it does suggest we’re moving into some new ad placement and buying models.

Next time, I’ll dig even deeper into those models, including auction-based systems and hybrid approaches.

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