By now, many of you know that Google has a new product in beta testing called Pay Per Action. Basically, this is an alternative to Pay Per Click advertising where the advertiser pays when a visitor to their site completes a certain action, such as joining a newsletter or more commonly, purchases a product. If you aren’t fortunate enough to have this option as a Google AdWords subscriber right now (Google stopped taking registrations for the beta a while ago), then you can only imagine the impact that this will have on Pay Per Click advertising.
This is definitely a trend that we have seen before, as online advertising in the days before Google AdWords, for those that have been in this long enough to remember that, used to be based on number of page views or impressions and then ultimately, click thru’s. Web site owners would pay for clicks and then would trust their sketchy web analytic tools to try to gauge whether or not this was a worthwhile investment for them. It was difficult or impossible to track return on investment, and eventually this model fell from favor with site owners until Google came along offering more detailed statistics and the opportunity to advertise on their search engine results pages (SERP’s), and when paired with Google Analytics site owners had the opportunity to at least research a little about the ROI and whether or not they were getting targeted traffic or not. At the same time, affiliate programs sprung up serving the need for site owners that wanted to pay for results more than visibility, which ultimately is what all site owners should be paying for. This commission based system was an alternative option for site owners that would only have to pay when they made a sale, which turned out to be very lucrative for those site owners fortunate enough to have a product that could sell and strong affiliates that could market their program.
Very soon, we will see Google Pay Per Action exploding onto the scene, and with that will be another change in search marketing landscape. A company that had been spending $1000 / month in PPC will now be able to spend the same money knowing that the money will only be spent when they convert. If you have a product selling for $100 on your site, you determine how much you would spend for a conversion similar to the maximum you spend for a click from a certain keyword today. Perhaps you then determine that it is in your best interest to spend a maximum of $10 per conversion for this site. You now know that your $1000 investment will not disappear until you have made at least 100 sales, generating $10,000 in sales. Obviously, anyone would take that option over the PPC option, even if you are only spending $1 per click before. Because conversion rates are considerably lower, it would likely make more sense to spend $10 per conversion than to spend $1 per click, unless you have a conversion rate of over 10% of course, but that would be an extremely high rate of success.
Now, the final side of this issue is how it will impact publishers. Because the typical conversion rate is so much lower than click thru rate, it will be rare for a publisher to prefer conversions to click thru’s. The one thing that Google’s tool will make it easier for the publisher is that it will take away the challenge of determining which affiliate to display ads for on your site. It will post them similar to PPC AdWords and display relative companies instead of the companies you have selected. It is very interesting to see how the entire thing plays out, but I really think it will be a huge blow to Pay Per Click advertising as we know it today, while not so indirectly taking business and market share away from Yahoo Search Marketing and Microsoft Ad Center as well. I’m sure I’ll have more to post on this topic and others in time as we get closer to seeing this reality take effect.