Google's test of pay-for-purchase advertising on the AdSense network may be an attempt to save a business that is fatally flawed. The pay-per-click model on AdSense has always struck me as the wrong one--too open to click fraud and too stingy for publishers who are publishing magazine-like content (such as most bloggers).
In my opinion, the ideal model for most blogs and other text-intensive content sites is impression-based advertising. Those skyscrapers on the right side of the page (currently served by Google, soon to be served by FM) send a brand message whether or not they are clicked on, and yet this site generates no revenue from the impression. This is a great deal for advertisers but a bad deal for publishers, one that Google should try to remedy.
At the other end of the spectrum, of course, are publishers who hire their buddies to click incessantly with no intention to purchase. These ads are bad deals for the advertisers and great deals for the publishers (and Google). The new Pay-for-purchase model seems designed to limit this behavior, but, in my opinion, it still won't solve all problems. The best system, in my opinion, would pay publishers a CPM rate for impressions, as well as a kicker for subsequent purchases.
The good news for Google is that, even if the current AdSense model goes down the tubes, the majority of the company's cash flow is safe. Google generates about half its revenue from its network but only a tiny percentage of its profit and cash flow.
First here too Bitches
Posted by: King Troll | June 27, 2006 at 11:00 AM
Could you tell us a bit more about FM? I was following its launch on Battelle's blog and looks pretty interesting. Why is it good enough for you?
Posted by: Majied | June 27, 2006 at 11:58 AM
Henry, my understanding, as far as it was a year ago, was that google did some kind of auction between CPM and CPC ads on its adsense sites. In other words,
it just worked out which would give it (and the publisher) more money, and chose whichever that was. So that kinda makes your argument moot (if it's still true)
Posted by: victor | June 27, 2006 at 01:04 PM
ps I hope you got to check out the Schmidt video i sent in comments on your last post before your travels :)
Posted by: victor | June 27, 2006 at 01:05 PM
Why don't they setup some sort of diminishing returns system? First click for a particular ad by a particular IP would get a set amount, subsequent clicks would get less.
Posted by: Johnie | June 27, 2006 at 01:47 PM
This will work for only certain category of products where the buyers decision making cycle ends with buying after search. In many product categories like say financial services the current advertising works.
I think if you want to get a very good indepth perspective on Google, you should read regularly the forum:
http://www.webmasterworld.com/category30.htm
You will find some of the most insightful discussion on Google, Yahoo, Ebay and other ad programs on that site.
Posted by: Pradeep bonde | June 27, 2006 at 02:15 PM
You've also got to wonder what kind of impact impression fraud would have on a CPM model. You think click fraud is bad?
Also, I wonder what portion of Google's Adsense revenue is contributed by advertisers that have a real brand. The long tail of advertisers that's supposedly contributing the lion's share of Adsense revenue likely cares very little about branding.
Posted by: Joe Jackson | June 27, 2006 at 04:58 PM
We're talking about "ADVERTISING," yes?
I'm not sure I'm confused or you're confused...
Posted by: an_observer | June 27, 2006 at 05:17 PM
If pay-per-click model has perfect returns, keyword inventories are severely undervalued right now.
They should be priced somewhere near Superbowl ads.
Posted by: an_observer | June 27, 2006 at 05:29 PM
I agree with Henry because Every publisher cheats with Adsense. However, there are websites that achieve significant amounts of legit clicks - these are the sites that aide searches - like travel-related sites, gadget related sites.
These sites typically would only do well with PPC and not impression-based advertising. Hopefully, these sites will do well with "per action" Adsense.
It's sad that fraud will kill Adsense - because Adsense is a pretty significant development in web advertising.
Posted by: rick | June 28, 2006 at 12:29 AM
Johnnie-
There are programs and systems setup to distort IP addresses. There are click farms setup in foreign countries (and probably locally) set to just click on adsense ads and each time it's from a different ip address. Even if you use AOL, you may be bouncing around from IP to IP every time you click on a link/ad/etc.
Posted by: rick | June 28, 2006 at 12:32 AM
I've always thought the model of CPM + a CPC kicker would have been the best model for the publishing network.
It gives publishers a steady stream of income, while encouraging good ad design and offering extra income for good sites. Since the CPC revenue would be less, there would be somewhat less incentive for clickfraud under this system.
Pity that Google built themselves up on clickfraud.
Posted by: Market Participant | June 28, 2006 at 11:09 AM
Henry,
how about the liquidity issue? PPC allows arbitrageurs and market maker to participate in the advertising marketplace which creates more efficient pricing and liquidity. PPA requires direct involvement from merchants/service providers so it will likely scale slower AND not be as price efficient. PPA is not a panacea. . . its not a wholesale improvement on PPC.
Posted by: Will | June 28, 2006 at 11:57 AM
How is cost per impression better than cost per click ? Doesn't make any sense in what you say. adSense was an innovative technology and won't die soon. But Cost Per Action is something what more publishers want to go with but that may not happen in its entireity.
Posted by: Convergence.In | June 28, 2006 at 01:39 PM
Click fraud was inevitable given a CPC, CPM, or any other cost-per-activity model where the activity is inexpensive to perform and easy to anonymize oneself. The current Internet architecture, protocols, and usage model makes it very easy to anonymize oneself and/or compromise computers to carry out actions such as clicking on ads.
Perhaps CPC was revolutionary in concept, but IMO the engines and networks should have realized the potential for fraud on a large scale. At the very least, they should have put in the types of configuration options that allowed advertisers and publishers the ability to control where ads are placed. They should also have included in the documentation for their CPC programs means to reduce the amount of click fraud.
IMO CPA is an improvement over CPC or CPM in terms of reducing advertiser and publisher exposure to fraud. However it has its share of problems as well. My personal opinion is that at this time, fixed fees provide the least risk of per-activity fraud.
Posted by: CPCcurmudgeon | June 30, 2006 at 01:13 AM
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