Google’s New Pay Per Action (PPA) Product

Google is testing a new advertising system that allows businesses to advertise on a cost per action basis. You can read Google’s own announcement here.

Until recently, Google has mostly sold pay-per-click (PPC) ads, under its AdWords program – advertisers pay when someone on Google or a Google partner site clicks on the ad. Google have also offered for quite some time a Pay per Impression (PCM) model for Site Targeted Ads.

Google AdWords PPC has one big advantage and one big disadvantage: You only pay for clicks of potential customers, but you also risk paying money for nothing (sometimes a lot) because of click fraud.

There has been a lot of debate around click fraud because Google has a short term financial incentive to promote it. Google’s new advertising product is “pay per action” (PPA). With PPA you don’t pay per click anymore but you pay when a customer takes further action, such as buying a product or signing up for a newsletter – a Conversion action that you can define.

How can Google track the action?

If you use Google’s PPA advertising product, then you must use Google’s conversion tracking code in the HTML code of your web pages. By placing the relevant tracking code on your Conversion page (generally a confirmation type page which is displayed once a conversion has been achieved), Google is able to flag the “Action” and trigger a charge.

Of course, the advertiser has an incentive not to confirm the action, but cheating does not make sense. Like PPC ads, PPA ads will likely be ranked by profitability to Google, so if you ads not generating any actions, then it will probably stop being displayed in the first place.

Adwords PPA Ads will be competing directly with existing PPC and PCM advertisers, (all these types of ads will co-exist on the Google Content Network) so it will be interesting to see how Google goes about determining which Ads to display, and what impact this has on bid prices. Google will almost certainly choose Ads which offer them the greater profit.

What are the consequences for the market?
Google will be able to better maximize revenues on its advertising network, and it also should allay the concerns over click fraud.

Google’s new PPA program is in direct competition to affiliate marketing networks such as Commission Junction and LinkShare. Publishers could leave those affiliate marketing networks and concentrate on Google’s PPA program.

Yahoo and Microsoft may very well offer similar PPA programs in the future. The current players on the PPA market Snap and Turn now face heavy competition.

What are the consequences for you as an advertiser?
If you already track the return on investment (ROI) on your PPC ads, then you won’t be affected much.

If you are a smaller advertiser, then PPA advertising could mean that you will pay less for better results in the future, and that you will never worry about click fraud again.

Note that Google’s pay per action program is currently in beta test. This means that there are some limitations:

* participation is by invitation only, you must fill out a web form to request participating in the program
* the PPA program is currently only available to US customers
* ads are limited to Google’s content network of partner sites (Google AdSense)