My heart almost stopped when I saw the subject of the Inside AdWords email sent, "[Inside AdWords] Pay-per-action beta test." That almost reaction almost doesn’t make sense though. We work in the CPA space. We spend countless hours stressing over trying to hit our CPA goals. This news should have come as a welcome and a big sigh of relief. Google, though, has many of us in the direct marketing space trained. While they may not have anything against direct marketing, they do seem to have something against those in the front lines of the direct marketing space, affiliate marketers and their Navy SEAL equivalent the search engine arbitragers. Therefore, when an announcement comes out regarding a change to the way they do business, even if it sounds like it should be good, history has taught us to view it skeptically, as it probably contains some element to make the lives of many CPA marketers more difficult.
By now, a whole two days after the announcement, enough information has surfaced, enough written about the topic those in the search engine arbitrage space don’t have to worry…yet. Google’s newest product does not do what I initially feared; it does not mean advertisers can bid on a CPA basis instead of a CPC one. No, Google is too smart to do that, as they have shown in the past, e.g. with their video ad launch. When Google began offering video ads, they didn’t do what might seem like an obvious fit. They started accepting video ads but not to display them after video content. Video ads literally meant ads showing on third party content sites that contained a video as the means of advertising, instead of their ubiquitous text ads. That move allowed them to build a base of advertisers and a history of working with video ads for when they do try and enter the pre- and post roll space. And, the same holds true for their pay-per-action program.
Instead of jumping from A to Z by offering advertisers a chance to pay for all ad placements on a CPA, they will offer only one type, and the company has made sure that it will only augment, not interfere with their current business. I respect them greatly for that as I would want to create the global solution. Following the same product strategy as they did with video ads, their pay per action program is decidedly simple. It runs only on third-party sites and does not rely on any advanced technology. They do not scan the page to look for keyword matches; they are not rotating ads, nor are they applying any optimization to create the highest yield among the stable of offers. In fact, in a huge break with Google as publishers know it, with pay per action, "publishers choose specific pay-per-action ads that are relevant to their site and can place them in a new ad unit on their page."
For those running AdSense, this freedom to select anything specific signals a first for the contextual program, if not for Google as a whole. The company and the notion of transparency do not go hand in hand. But, to play in affiliate marketing, you only succeed by moving out of the way and connecting site with merchant in the most efficient manner possible. Google wouldn’t be Google without some opacity, and with regards to their affiliate network, their Beta launch means it will take some time to learn what percentage they pass on to publishers to even get a peak at the interface. Given Google’s love to hate relationship with affiliate marketing, don’t expect them to use the term affiliate marketing. In this program, even though publishers choose the ads and get paid on a CPA basis, Google calls the process "Referrals." Publishers are referring their visitors to products and services they feel appropriate. What makes this program interesting from an advertiser perspective, though, is that Google will make it relatively easy for one advertiser to promote a variety of different actions.
In the current affiliate model, merchants tend to offer a universal price, e.g. Best Buy will offer a certain percentage of sale to its affiliates. Best Buy doesn’t see their business that way. They see products with varying margins; the existing platforms, though, make it harder to segment and don’t incent the advertiser to market their business in the fashion that necessarily makes them the most money. For ease of operation, they tend to make due with a blended average. Not so with Google’s program. A company like Best Buy, or Google kindred spirit Apple, can now offer a certain percentage of sale for one product and another percentage for another. Almost as easy as creating an ad group, an advertiser can set up a campaign for one thing, say iPods, and another for laptops.
Of the industry news, a fair amount seems to revolve around whether Google’s pay per action program will signal the death of companies like Commission Junction and LinkShare. It’s fun to speculate, but no one knows. After I get over the initial shock of any Google announcement, I tend to step back and ultimately think of it as opportunity. Google builds amazing platforms, but they will not enter the affiliate business as we know it. They have tens of thousands of employees, a huge sales and support staff, but I don’t see them building affiliate management expertise; I don’t see them building up a team of people who live the advertisers’ product as though it were their own. Ultimately, some merchants might rely less on their existing affiliate network, but I suspect that many will look to their existing provider, especially if it’s an outsourced affiliate management company, to help them navigate this new Google opportunity. Perhaps the only slight to existing affiliate networks are comments from such, historically on top of it, sources like the New York Times and Business Week, who seem to forget that others have offered pay per action advertising for the past ten years.
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