Internet advertising rule book to be torn up

Online advertisers are still trying to get to grips with “pay per click” advertising, such as Google AdWords. Considerable numbers of people spend large amounts of money on pay per click advertising with little if any return. The auction model for things like Google AdWords is complex and requires considerable attention to detail in order to get it right. It is much more complex than traditional advertising in newspapers and magazines which was largely using a “fixed price” model.

However, just as you might be getting used to pay per click, a new advertising model is being developed and it is going to arrive sooner than you might think. For several years good businesses have analysed their “cost per action”. In other words they know exactly how much it cost their company to gain each new customer or sell each product. Indeed, if you don’t know that your business is poorly controlled.

Some online advertising agencies have suggested that cost per action advertising will become the main method of Internet advertising. In this system, you only pay if the specified action takes place. So, for instance, say you have an advert for an ebook, you would only pay if someone bought the ebook, not just clicked on your advertisement. At the moment you could pay for thousands of people who click on your advert, even if they don’t buy from you.

Sounds great doesn’t it? It beats newspaper advertising hands down and traditional pay per click. You would immediately know which kind of advertising was effective and you could experiment without any cost. Plus, it would eliminate “click fraud”, whereby automated systems or competitors click on your pay per click adverts just to spend your money!

Well, a little while ago Google announced it was beta-testing cost per action advertising – though it has now renamed it “pay per action”, just to confuse us all. Some coverage of their press announcement occurred, but as it was only a beta test, it did not attract major headlines. However, last week Google Vice President Marissa Mayer told a conference that “pay per action” was the Holy Grail that Google was aiming for.

However, amongst all the announcement and conference discussion is the notion that this is a long way away, that it is something that is in the distant future. Don’t believe it. Google can already do it. Within Google AdWords you can already get information on the cost of getting each order or each customer. Combine that with Google Analytics and you have a simple way of measuring cost per action.

So why is Google suggesting it’s a long way off? Probably for two reasons. Firstly, if they switched to this now, they would lose money. Few businesses know their cost per action, therefore they would have poor advertising leading to few actions (just the same as AdWords now) and Google’s income would plummet. So, Google needs to be part of the education process that helps businesses improve their control systems.

The second reason is they want to find out if the market is ready. They are flying a kite to see which way it goes. The technological issues behind cost per action are minimal and easily solved. The fact that most businesses will be unable to generate any income from this kind of advertising is a serious problem for companies like Google most of whose entire income is made up from people who are unable or unwilling to understand advertising. Do that and you will significantly improve your current pay per click campaigns – and you will be in pole position when pay per action becomes commonplace, which will be sooner than you think.

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