The original web based advertising model was based on a cost-per-impression model or CPM. The simplest description of CPM is that advertiser pays for the number of times their advert is displayed. Say, $50 per 1000 impressions or 5c an impression.
This model is still alive and well. Even Google, who through their revenue have proved to be the masters at cost-per-click, or pay-per-click as their feature is called, now provide a cost-per-impression model in their popular AdWords product.
I'm sure you're familiar with the idea of cost-per-click or pay-per-click advertising, even if you've only heard about it. You bid for the the position of your advert and you only pay Google if an end-user actually clicks your ad.
The magic of Google's model comes in the way that adverts are chosen for display. Picking them based on the relevance to the website displaying the ad or using the search terms the user types into the search engine. In either case, it's automatically targeted advertising - brilliant. Surely an advertisers dream?
But, pay-per-click is not without its challenges. The biggest of which is click fraud; where ads are clicked by malicious competitors to cost the advertiser money or to make money for the website displaying the advert.
Google appear to be proactive in dealing with click fraud. But there is another advertising approach which goes some way towards dealing with the problem. And, so may replace pay-per-click as the preferred advertising model in the near future. It's called cost-per-action advertising or CPA.
I came across cost-per-action through service provided at ModernClick.com. It's pretty straight forward to understand the idea. Rather than paying for a click, you pay only if your website visitor performs a specific action, like buying a product or opting-in to your newsletter.
Well, on 20th March 2007, Google announced the beta of their pay-per-action extension to AdWords, implementing cost-per-action advertising.
It seems like a very sensible approach giving the advertiser an even clearer connection between advertising cost and results. You may decide that its worth paying $1 for every new newsletter sign-up and $10 for every product sale.
Although creating your adverts and setting your action price isn't the end of the story. Website owners in Google's site network (Google AdSense account holders signed up to this feature) need to choose your adverts. That could mean that a competing product advertiser willing to pay $15 or $20 per sale of a similar product may get picked over yours.
In the long run, the sites that have the best sale conversion to CPA commission rates will be the winners. After all, there's no point displaying adverts for a product that pays you $100 per sale if the conversion rate gives you only one sale a week, against a competing product resulting in $10 per sale but converting 5 a day for an overall $250 commission.
To the advertiser it sounds similar to an affiliate model. Here you typically pay a commission, say 20% of the product sale price, per sale to an affiliate. With CPA you have the same opportunity to pay a 'commission' for a product sale.
Of course, it's slightly different for the website displaying the adverts. They will only receive their commission after Google has taken its profitable slice. But, something tells me that this won't stop it becoming a success.
The beta for Google's pay-per-action feature is available to those with AdWords accounts in the U.S.. Being based in the UK we don't have one of those; but if you do, it may well be worth signing up before the hordes move in, increasing the amount you have to bid to make your 'actions' attractive.
-Mark
Mark Quirk is a director at Know It Use It Ltd
http://www.ValuedClientSystem.com - From Prospects to Customers to Valued Clients
http://www.VCSHosts.co.uk – Create Your Online Business In A Box
