Google to scuttle its pay-per-action beta

What had been seen as a unique alternative pricing model for advertising, which Google began testing just last year, is being phased out after the end of August.

In March 2007, Google launched its beta test of what many thought may become an evolutionary step in the development of Web advertising: a pay-per-action (PPA) model where clients get to choose which customer actions matter most to them, and pay Google only for those actions. For example, as an alternative to cost-per-click (CPC) where an advertiser pays each time someone clicks on an ad whether or not he becomes a paying customer, the advertiser could choose instead to pay Google a percentage of each sale once that's finalized, or each time a customer has clicked through to a particular page rather than just the first one that comes up after the initial click.

It was such a revolutionary idea, it seemed, that Microsoft developed an unique response to it that perhaps only Microsoft could have conceived: an advertising model in which Microsoft pays the advertiser back for similar actions, such as when the sale is made.

Surprisingly, yesterday Google announced it would be pulling the plug on its PPA beta, and is advising its clients to move to a service called Conversion Optimizer instead. This service uses what Google describes as a "CPA" model, perhaps recognizing that the two abbreviations are often used interchangeably. Yet this CPA is actually somewhat different: It's a cost-per-acquisition model, and a clever variation of it at that:

With Conversion Optimizer, the advertiser bids the amount it would prefer to pay Google if it actually did charge CPA, which Google freely admits it does not.

"For each ad group, simply specify a maximum CPA bid, the most you're willing to pay for each conversion like a purchase or sign-up," Google's explanation for its Optimizer product currently reads. "The Conversion Optimizer does all the rest; using historical information about your campaign, it automatically finds optimal CPC bids for each auction. You still pay per click, but you no longer have to manually adjust your bids to reach your CPA goals."

Google goes on to explain that this tool finds sites that are more likely to score highly in response to its users' more highly customized search queries. This reduces the risk of advertisers bidding too high for phrases that score too low, tending not to generate clicks and thus, by inference, not to generate customers.

Advertisers who truly do want to use CPA -- where the "A" continues to stand for "acquisition" as opposed to "action" -- are advised to apply to join the Google Affiliate Network, which was formerly known as DoubleClick Performics Affiliate Network prior to their merger. There, advertisers may specify the CPA they're willing to pay for their entire campaign.

Yesterday, Google also announced it's also discontinuing a related service called AdSense Referrals, whose beta/release status had been uncertain in recent months. Using the same PPA system that Google doesn't appear to be interested in any more, it enabled participating publishers to place referral buttons on their sites that led directly to AdSense services, and would be compensated for doing so.

"With referrals, you'll be paid when your visitors click through to an advertiser's site and complete an action defined by your advertisers, such as a sale or sign up," read an early invitation to the Referrals beta. "Because these actions are often more involved than a simple click or impression, advertisers pay more for these referrals, which can translate into higher earnings for your site. Further, you'll see the expected earnings and advertiser performance ahead of time, so you can make the best decisions about what to refer. You can also choose to target the keywords that will ensure you get the highest-paying referrals for your ad space."

In its less-than-informative announcement this morning, Google advised those same publishers to join the Google Affiliate Network, although it has no similar referrals service. Furthermore, as this report by ReadWrite Web notes, AdSense is not yet actually integrated into Google Affiliate Network, so these AdSense customers are actually being advised to not be AdSense customers, at least until the Google system and the former DoubleClick system are technologically reconciled.

Update ribbon (small)

12:55 pm EDT July 1, 2008 - A Google spokesperson told BetaNews this afternoon that the company came to the conclusion that, although the pay-per-action model is different from the cost-per-acquisition model used in Conversion Optimizer -- that much was conceded -- advertisers would likely prefer to use CPA anyway.

This despite, the spokesperson told us, the known presence of any hard data which would point to this trend. Were advertisers using the PPA system choosing customer acquisition as their preferred action, and is that why Google felt comfortable transferring ad customers to Optimizer? The spokesperson had no answer, other than to say that Optimizer enables advertisers to use the more traditional CPC model with which they're more familiar.

"We are constantly testing, trying new things, innovating," Google's spokesperson remarked to BetaNews. "A lot of beta trials don't make it to final launch, for whatever reason. We concluded it made sense to move forward."

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