The future of cost-per-click is questionable.
Cost-per-click advertising, such as Google Adwords, is a staple of the internet advertising industry. It is also the primary form of advertising used to monetize parked domain names. But will CPC give way to CPA (cost per action)?
First, a little history. It used to be that many affiliate programs were actually CPC programs. You would sign up as an affiliate and the program would pay you a few cents for each click. But as one-off affiliate programs, it was hard to control click fraud. So companies focused on CPA. An “action” can be something as simple as a visitor signing up for a newsletter or as complicated as buying a product or completing a mortgage application.
But GoTo, the predecessor to what is now Yahoo Search Marketing, changed all of that. Its model took off, and Google adopted it (Google’s Adwords started out as a CPM model that charged advertisers each time an ad showed up).
But with click fraud rampant, are we going to see search engines move to a CPA model?
Google has been beta testing an affiliate network for some time, and this week re-branded an affiliate network it acquired with its purchase of DoubleClick (see graphic). It also announced it will shut down its existing beta test. The beta was integrated with Adwords; the DoubleClick program is not. This sends a mixed message.
I’m still unsure where the search marketing business is headed, but here are both sides of the story:
Why CPC will reign supreme – Publishers feel that being paid by the click is a happy medium of accountability. When advertisers pay per action, publishers now have to be concerned with the quality (conversion rate) of the advertiser’s landing page. Publishers also worry that advertisers won’t report all of the actions, thus ripping them off. Some people believe that we’ll even see some of the current CPA affiliate programs move back to CPC due to state laws. New York recently started charging sales tax to companies such as Amazon that have affiliates in New York. The state decided these people are similar to “sales agents”, thus giving Amazon nexus in the state (a prerequisite for collecting sales tax). These companies may start paying affiliates by the click to work around these laws.
Why CPA will overtake CPC on search engines – Click fraud is rampant. Advertisers are tired of paying for clicks that don’t convert. Why not pay only when the click converts into a sale? If click fraud continues to grow, advertisers may demand CPA from the big search engines. As for the argument that CPA puts too much responsibility in the hands of the advertiser, a network like Google can account for that. It will optimize the ads shown according to how much revenue it expects you to earn per click.