Apr
15
Google’s new Pay Per Action offering
Filed Under SEO / SEM
In case you have heard about Google’s new beta PPA offering… it is NOT much of an offer IMO. Pay-per-action is, in theory, the idea that the advertiser does not have to pay unless a specified action is taken by the prospective customer. For example, instead of paying $3.00 per click…then worrying about what percentage of the click-through prospects actually CONVERT from the appropriate call to action (note: conversion is driven in large part by site quality AND by the quality of the offer AND the relevancy of the targeted keyword or phrase to what is being offered…one reason why Webxites’ insists on bundling the offer), the PPA offer would allegedly have the advertiser pay nothing on the click and then only pay for the conversion. Also, there have been beta tests of a pay-per-call (rather than pay per click) option for a couple years.
What does this mean, in the overall world of Internet advertising?…and what does this mean to Webxites’ current model? It probably isn’t a threat and, while exciting to read about, it wont ever likely be a serious offer from Google or Yahoo for the typical small to mid sized business owner.
Why? Here is the bottom-line. Lets say we decided to share in the risk with a customer…we absorbed the click through costs, and the web development expenses, and only charged them for the actual action / conversion. What’s wrong with that pretty little picture?
What if the business owner was simply no-good at running their business…or at converting qualified leads. The company paying for the ads would suffer unduly from their incompetence. Simple things such as staffing the phones, their overall pricing model, quality of the product / service being offered, etc…all add up to weaknesses in the overall revenue model BUT the business owner is not the one paying the price for the cost of marketing and, thus, is not suffering from poor decisions.
Every economic decision (business or personal) should be weighed mentally against a simple equation: When you take COSTS and factor in the RISKS, is the desired end amount (upside / ROI) significantly greater than the investment, such that one is willing to incur the risk of loss in order to have the possible upside / ROI (return on investment).
For example, when analyzing a bet in a casino, you take risks and possible ROI and consider whether it is worth doing or not. On a roulette table, you can bet $1 on a single number and, if you when, you get $64 back. A nice return…but what are the odds of winning? Slim…very slim. Less than 3% likelihood of hitting your number. In blackjack, it is closer to a 45/55 likelihood of working and, thus, they only pay you 1:1. Your risk has to be weighted by your possible ROI. (note: don’t drink and gamble…that’s where they get ya!)
In business…if someone (Google or Webxites) decided to shoulder the risks…they would want a much higher possible ROI. In order to offset the likelihood of continual losses for a time. The only way, either Google or Yahoo or Webxites would shoulder this burden is (a) if they knew the business owner could sustain the amount of prospects sent their way, (b) if they knew the business owner was capable of handling conversions (i.e. customer service / sales staff), (c) if they knew the business owners product / service was priced appropriately to attract conversions, (d) if they knew the business owner could pay the likely increased transaction costs (i.e. not $3 a click, but $200 a conversion or $20 a call for example), and at the end of the day…(e) if they knew the risks were worth taking.
Why PP-Action / PP-Call wont be a valid offer to the small business community…too much risk to Google, Yahoo, or Webxites…too much risk, not enough ROI. If the client were Dell Computers, who could show proof of conversions…no problem (for a shared upside anyone would do that)…but for a small business owner, with an unproven business, and a world of unknowns…wont likely ever happen.
So…what is all this hype of pay-per-action about? Content network and fraud protection. If you read in detail, you will see that Google is ONLY beta testing PP-Action on their content network. Meaning they will only allow PPA ads to be run on someone else’s web site. This is to encourage advertisers to consider Google’s content network as a viable option and to eliminate or reduce the risk of click fraud on those same content network sites. In other words…Google will let the content publisher take the risk…in order to drive more ads to them (by eliminating or reducing the possibility of click fraud from the content site owner), but they will not do it on their own site, or on the search network sites (AOL, other search engines, etc).
What about the PP-Call hype we’ve read about? Hype. There are a number of companies that are, functionally, shouldering the risk of PP-Call. Either technology providers who are reducing the overhead risks and making huge ROIs ($10 a call +) OR vertically focused entities who know so much about the industry they are willing to shoulder the risk for specified SELECT clients. For example, a college admissions company that will charge the college only for successful applications; they run the SEO / SEM campaign and then sell the colleges the apps at highly marked up rates. Same model, functionally, for Service Magic.
At the end of the day…the business owner will ALWAYS have to pay for their marketing expenses. These are all simply economic games to splice the up-front costs out or to share the burden of the up-front costs with the business owner….but just as in Vegas…the bigger the gamble / risk the higher the required pay out / ROI. Anyone sharing the risk with the business is going to do so ONLY if they know the business, the industry, the target marketing, the conversion numbers and the ROI…and then they will exploit their financing of the marketing expenses such that the business owner pays MORE per lead in that environment than in any other environment.
That is the ONLY way in which the PP-Action model will ever work…when the person burdening the risks makes a higher ROI…which means lower profits to the business owner.
Will Webxites ever offer something like this? Maybe, if we can get an inordinate return, we know the industry and we know the business owner is efficient at converting prospects. A lot of “ifs”. For now…it is just too risky. This is just another example if how rising click-through costs will create industry fragmentation of pricing models, advertising venues, and overall service offerings (local, yellow page, shopping, vertical portals, etc.), which simply continues to justify Webxites’ flat rate client-focused Best of Breed / Six Sigma service model.
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5 Responses to “Google’s new Pay Per Action offering”
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This is exactly what I expected to find out after reading the title s new Pay Per Action offering : Common $Cent$. Thanks for informative article
I couldn’t understand some parts of this article s new Pay Per Action offering : Common $Cent$, but I guess I just need to check some more resources regarding this, because it sounds interesting.
Thanks for the info about e’s new Pay Per Action offering : Common $Cent$!
Do you have any stats (averages or ranges) of cost for PPA campaigns, by sector, product or whatever? My Google account strategists say they don’t know. Thanks for the article.
Great article! I agree that PPA or PPC will not work for the small or medium business. In actuality, 97% of retail sales still occur offline (Census Q1 2007) and PPA is geared towards online only so even IF the initiative is a successful one, they’ll only capture a very small piece of the overall pie.
I have heard about a start-up in the Seattle area by some ex-Microsofties that is supposed to solve all of these problems - uncertain ROI, upfront cost, click fraud (or the perception thereof), ad word complexity etc. I believe they call it PPT (or Pay per Transaction). Check it out www.adfission.com.
Nicely written!