Google AdSense Beta to Apply Direct Sales Model to Advertising

In Dell Computer's revolutionary direct sales model, which altered the evolution of American business, component parts for building customer orders were purchased at or near the time of the order, reducing to near-zero inventory on hand and accelerating the company's rise to profitability. Google is already pretty profitable in its own business, but today it confirmed rumors that it will experiment with an approach to advertising sales that Michael Dell might appreciate: a cost-per-action model where the advertiser pays when the sale is made.

While similar systems have been tried by Internet advertisers before, they've been on a far smaller scale. Google's upcoming AdSense beta will give selected participants in the US the option of determining the value of a user's action - such as paying for a download or signing up for a newsletter - triggered by an ad supplied through the Google AdSense network.

Rather than paying for the click (which may not result in a sale) or for the impression (which the customer might not even see), a beta advertiser may choose to pay for the "action," which is an advertiser-defined point in which the customer's sale is declared "converted." (FULL DISCLOSURE: BetaNews is a Google AdSense partner.)

Publishers and media consultants today see this news as signaling a major Web transformation, but into what specifically is still being debated. Some foresee Google's move as triggering a broader creation of what are called "sales funnels:" content intentionally designed to lead readers toward the trigger that generates the conversion, rather than simply placing the ad in its traditional leaderboard or skyscraper position.

One key potential benefit some see is that sales funnels could effectively filter out click fraud - invalid clicks tracked by Google that would normally be chargeable to advertisers, though which aren't really clicks made by human beings. In a recent report, Google said it believed as much as 10% of recorded clicks were not valid, and by way of voluntarily filtering them out, the company refrained from collecting an additional $1 billion in revenue.

As TechCrunch blogger Michael Arrington writes this morning, the new AdSense trial model "won't affect big advertisers much, because they already track [return on investment] on [cost-per-click] advertising very closely. For smaller advertisers though, click fraud can wreak havoc. The ability to largely filter out click fraud will help them track ROI much more closely that they previously could. This will be a big help for them."

Others are sounding the alarm bell, however, including Atlantic Media managing director Scott Karp, who in his blog this personal blog this morning writes, "With its CPA [cost-per-action] program, Google will drive this phenomenon to the next level. With cost-per-click ads, spammers create bogus pages where confused consumers click on ads in an effort to escape. But with CPA ads, clicking is not enough. The game is now to manipulate consumers not only to click, but to take some further action. And I don't use the word 'manipulate' arbitrarily. This is about turning the web into one big pile of junk mail, aimed at getting you to sign up, buy, or commit to something that you hadn't necessarily wanted."

Surprisingly, Microsoft's director of business development for emerging markets, Don Dodge, sees potentially huge benefits down the road for Google. Dodge writes this morning, "PPA [pay-per-action] will generate huge revenues per ad. Advertisers pay more for CPC ads than CPM [cost per thousand impressions] banner ads because they get a better qualified lead that has actually clicked on the ad. With PPA they will pay even more, a lot more, because the user (lead) took a specific action like filling out a form. The other major on-line ad networks don't offer PPA ads so Google will have the market to themselves for a while."

But later, Dodge warns that the PPA/CPA model might actually trigger fraudsters into creating newer and more ingenious forms of luring consumers into fraudulent sales funnels - schemes which Google may need to develop automated measures in order to detect.

As part of the AdSense beta, Google is joining IntelliTXT and other online advertising firms in deploying an automated phrase-highlighting system that generates hyperlinked ads within existing text. (BetaNews is currently enrolled with IntelliTXT.) That part of Google's new strategy prompted TechDirt to headline its story with the phrase, "Something Else Which You Can Just Ignore."

Search engine optimization (SEO) experts this morning are commenting that Google may have a deeper and more serious strategy than just creating more double-underlines in Web copy: By generating hyperlinks that lead directly to sales, and collecting a percentage of the sale rather than a fee for the click, Google places itself in direct competition with so-called affiliate marketing firms.

In which case, Michael Arrington writes, "Affiliate marketing networks like Commission Junction and LinkShare are screwed. These networks also operate on a cost-per-action basis, mostly with online retailers. Even though some of them have scale, they will not have the ability to compete with Google on sheer size of network."

Google is signing up willing participants for its beta test now, and says it will notify accepted applicants in the coming weeks.