Google Moves Beyond Pay-Per-Click Ads

Google just announced that it's testing what it call Pay-Per-Action ads. Basically, advertisers will pay not for every click, as they do now, but only when someone buys something, fills out a form, or takes some other action (besides clicking).

On the surface, it looks like the Holy Grail for advertisers, some of whom wonder why they're paying for clicks that may produce no revenue, or may even be fraudulent. But it's not a replacement for pay-per-click ads. Andy Beal at Marketing Pilgrim thinks it's mainly a shot at affiliate networks such as Amazon.com's Affiliates, which are Web sites that get a cut of revenue when people they send to Amazon buy something. Jeremy Liew at Lightspeed Venture Partners think it also will do a number on lead generation firms such as LowerMyBills.com and LendingTree. Mike Arrington at TechCrunch has a good summary.

Still, there's a good reason cost-per-click has been so successful. It's kind of the mama bear of online advertising. Theoretically, advertisers would like to pay only when someone actually buys something, provides information about himself to provide a sales lead, and the like. But Web sites don't necessarily want to run only cost-per-action ads because advertisers can tend to be lazy about creating good ads and good landing pages when they know they only pay for an action, not every click, says Anil Kamath, CTO at Efficient Frontier. Pay-per-click provides the best balance of benefits for advertisers and Web publishers, he believes.

So don't expect cost-per-action to supplant cost-per-click ads, as some companies like Snap.com hope. But in a way that startups such as Turn have not yet managed to do, Google's test may usher in the next step in the evolution of online advertising.

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