Google tests Pay-Per-Action for AdWords

Yesterday, Google announced pay-per-action (PPA) pricing model beta test for their Adwords product. I have ranted before on the lack of transparency in the online advertising model, where click-fraud is a real issue and so are conversion (to sales) ratios. So this move came as a pleasant surprise, at first…but on closer examination, this announcement raises more questions than it answers.

Google describes Pay-per-action advertising as

…a new pricing model that allows you to pay only for completed actions that you define, such as a lead, a sale, or a pageview, after a user has clicked on your ad on a publisher’s site. You’ll  (advertiser) define an action, set up conversion tracking, and create ads that publishers in the Google content network can then choose to place in new ad units on their site.

So far so good, right? There’s nothing wrong with paying only for the clicks that result in an actual sale or pre-defined action.

Here’s how the PPA pricing model works:

You (advertiser) define a fixed amount that you’d like to pay for a completed action based on the value of that action to your business. You’ll only pay when that action is completed, not for a click or impression. For example, you may wish to pay $1 every time a user fills out a lead form on your site and $5 when a purchase is made.

Google and publishers can potentially make more money under this new model since the pricing model will no doubt be adjusted to reflect this additional value, as Google explains. However, Google’s conversion tracking system allows campaign management and tracking of conversions but only from the site. What about transactions that occur offline or on the company’s internal system such as a sales transaction?

How is Google planning to track these completed actions? Is it relying on the advertiser to report these offline transactions?  What if the advertiser doesn’t have an accurate tracking system? What if the advertiser ‘forgets’ to report the sale/action? And what about products with long sales cycles? Will Google and its partners be willing to wait that long to collect?

Here’s the problem, the reason many (especially) small companies remain fixated on the leads-generated or click-through rate rather than leads-converted-to-sales is because:
a) it’s easy to measure how many leads/clicks are generated
b) it’s not as easy to track down which leads converted to sales, especially for products with long sales cycles.

Many small companies do a lousy job of accurately tracking their conversion rates. Unless Google is planning to launch a new analytics tools for small businesses to track their offline conversion rates, it’s an iffy proposition.

Michael Arrington of TechCrunch makes an interesting point, by announcing this new pricing model, Google has avoided any debate over it’s more controversial move – their new text link ads.

Text link ads are brief text descriptions that take on the characteristics of a publisher’s page. These Javascript-based ads will display like regular hyperlinks and allow publishers to embed these links inline with other text to promote your product or service.

Michael says,

No longer will Google ads need to be confined to their own space on the site – publishers can subtly embed ads right into hyperlinks within the main content of the site itself (see second paragraph of quote above). Other companies already do this, but Google has never tread into the “advertorial” space before.

They’ve crossed a hazy ethical line here. If this product was announced on its own, it would be heavily debated by the blogs and press. But by burying it in other, bigger news, they’ve mostly avoided the critical analysis that this actually deserves.

I agree! I don’t have to remind you that this is the same search engine who clearly differentiated between sponsored links and organic search results to avoid confusing the users. With this new format, Google is going the opposite direction, ie. it’s okay to blend the advertising within the content, even at the risk of misleading the reader.

Moreover, publishers won’t be too thrilled about finding ways to incorporate these ads into the body of their content. Allen Stern of CenterNetworks has this concern,

Now correct me if I am wrong, but is this Payperpost or not? So Google is suggesting here that you make up good wording to "sell" the product. They don’t even suggest you should try or test the product first. And their "disclosure" is only a mouseover. Everyone bitches and moans about PPP and their disclosure, yet this is ok?

That’s an excellent point, Allen. As an advertiser, it’s very appealing, but I can see why it’s going to be a hardsell for publishers, who will have to find creative ways of incorporating these links into the body of their content. I agree, it’s very similar to PPP, in that publisher is endorsing the product by including it in the body, while under the current system, there is a clear differentiation between the sponsored vs. non-sponsored (legitimate) content.

So, while the PPA seems to be a move in the right direction, however implementing this pricing model is fraught with practical and ethical questions.

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