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It’s been rumored for a while, but it’s finally being tested, as Google has announced a beta program to test pay-per-action (PPA) AdWords bidding. The Snap search engine has done PPA for years, but obviously it is big news when Google does it. I first speculated on this two years ago when Google acquired the Urchin analytics firm (now Google Analytics), but it’s finally here. What does it mean to search marketers?

First, if you’re concerned about click fraud, this would be a way to eliminate it. As I wrote long ago, there’s no ability to create click fraud if you have to buy the item. Since then, folks have reminded me that another kind of fraud might exist, depending on how Google implements their system—crooks could click on your ad, buy your item, and then return it. Google might not refund its per-action fee. I’ve seen some references to this being called Click-Order-Return (COR) fraud, but we have too many TLAs (three-letter acronyms) as it is, so I prefer to call this “return fraud.”
Andy Beal believes that this announcement is a harbinger of Google becoming an affiliate network, just like Commision Junction. Kevin Newcomb at Search Engine Watch agrees, but Google has denied this. It’s interesting, though, because by positioning itself as an affiliate network, it would make sense for Google to have a closer relationship with affiliates than it does with advertisers, allowing return fraud to be more easily policed. You could refund the per-action fee and then be in a position of having to police your affiliates so they don’t fraudulently claim an item was returned when it wasn’t. (It’s a complicated world out there, huh?)
But if we can believe Google’s denials (Andy does not), then Google would be having a much more hands-off relationship with its advertisers (rather than treating them as affiliates) just as it does today. That would make Google less likely to refund money for return fraud, I think, but we may have to wait and see what they do.
Now understand, return fraud is a lot bigger pain to pull off than click fraud—someone has to receive the package and send it back and ensure the money was refunded, so you’d figure that it would occur less than click fraud does. My take is that, for search marketers that really want a “pay for performance” advertising model, PPA could be a godsend. No longer would you need to carefully calculate how much you should bid for traffic—now you can just provide a cut of your transaction profit (or a cut of your LIfetime Value if you are savvy) and you can be sure (in the absence of return fraud) that you are making a good business decision.
Regardless, this is an important step in the industry because advertising models should be about customer choice. You should be able to pay per impression or per click or per action—your choice. Google is trying to make it happen, which is a good thing, regardless of how it turns out.

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Mike Moran

About Mike Moran

Mike Moran has a unique blend of marketing and technology skills that he applies to raise return on investment for large marketing programs. Mike is a former IBM Distinguished Engineer and a senior strategist at Converseon, a leading social consultancy. Mike is the author of two books on digital marketing, an instructor at several leading universities, as well as a Senior Fellow at the Society for New Communications Research.

3 replies to this post
  1. Our company will be publishing an extensive whitepaper (on our web site, on a specific new click fraud threat that is growing rampant and not being detected by the networks.
    There is no question that PPA or “CPA” (Cost-Per-Action) does, in fact, completely solve the click fraud problem. Unfortunately, it is not a realistic solution, as we are comparing apples to oranges when we say “CPC vs CPA”. The market and supply for CPC is huge; while the “supply” (availability) of CPA traffic is virtually non-existent in comparison. CPA is not advertising, and therefore will never attract masses of publishers, thus there will never be a sufficient supply.
    One quick side note; “Return Fraud” is a non-issue. Not only does the time/return ratio not make sense for would-be perpetrators, but all existing PPA programs already have built-in measures to debit affiliate accounts upon returns. In fact, this very feature opens up a completely new type of fraud; Advertiser Fraud (merchant fraud against publishers) can occur when unscrupulous advertisers falsify return records in order to receive advertising refunds.
    Merchant fraud is among several reasons that most publishers do not participate in CPA based programs. There are so many other reasons that listing them all here would be beyond the scope of this post, but the bottom line is that CPA completely reverses the table between publisher and advertiser.
    In a typical advertising scenario, publisher “sells” ad space within his media to the advertiser. The advertiser is the customer, and also the one taking the risk. The publisher must convince the advertiser that his media opportunity will produce effective results. The publisher’s responsibility ends upon displaying of the advertisement to its audience.
    PPA is a boon for the advertiser. Not only does it wipe out the possibility of fraud, but it also completely removes his risk, as he is only paying for sales. Now, the publisher is taking all of the risk, and has no idea what, if any, revenue he will receive for the advertising. If the only risk was proving that his audience was a good enough match to produce good response to the ad, the publisher would be more likely to accept the terms (this is, in effect, CPC).
    However, the publisher is also taking the gamble that the advertiser has both a marketable product AND an effective marketing plan, all the way through the conversion process to the close of the sale. All of this is outside of the publisher’s control, so that’s quite a big gamble. If their is little market for the advertiser’s product, or if the advertisers price is not competitive, or the advertiser’s web site is unprofessional in appearance, or any number of other reasons that lead to loss of the sale, the publisher gets nothing.
    Add to this the problem that reporting of affiliate sales/actions is notoriously flawed. In addition to relying on the advertiser to accurately report sales and actions (again leaving the door open to dubious merchants), there are huge technical problems with tracking end consumers all the way to the point where an action takes place. This is typically done via browser cookies, which are more and more commonly being blocked or deleted by end users, effectively eliminating any chance of the publisher to receive credit for any subsequent actions that occur.
    So PPA does not solve the problem of fraud, it reverses the problem, and causes several new problems.
    Of course advertisers love PPA; they are not taking any risk, and instead of paying for advertising, they are effectively gaining a small army of commission-only sales and marketing people.
    Although any smart advertiser will tell you that his budget is “unlimited” for CPA, the problem is the ad inventory is simply not available. There is no supply.
    Should Google’s new CPA program make it out of beta and become available to all advertisers, the problem will not be getting advertisers signed up; they will come in droves… The (seemingly insurmountable) hurdle will be in convincing publishers to supply the program, and without supply there can be no sales.

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