I was reading a CNET blog post Google deems cost-per-action as the ‘Holy Grail’ by Stephan Spencer. At the Search Engine Strategies (SES) conference in San Jose, Marissa Mayer, Google’s VP of Search Product and User Experience, delivered a keynote in which she talked, inter alia, about the Cost Per Action (CPA) model for advertisers and that it is a long way off.

In a CPA scenario, the advertiser pays only when a pre-agreed action takes place, such as filling out a form, making a purchase, speaking to the advertiser by phone, etc. Google has been testing CPA with select AdWords advertisers in several ways.

For example, in its Click to Call experiment, the advertiser bids, say, $25 as opposed to $2 per click to have a high position (subject to other factors, such as Quality Score) but pays only if someone clicks and speaks to the advertiser via the Google-arranged phone call. The high bid makes it fair to regular PPC advertisers who pay for every click, fraudulent or otherwise, who are also bidding high to be in the higher PPC positions. The CPA bid could be 8 to 12 times higher - I have no idea how it is worked out, but Google has access to the conversion stats of advertisers if they choose to track conversions for online transactions. Where e-commerce is present, it is easy to tell what percentage of clicks end in transactions.

If CPA does catch on, Stephan opines that SEO will become more diversified into helping clients with conversions, perhaps by offering organic search cost-per-click (CPC) which is offered, coincidentally, by his own company. Yes, a few SEO companies are already offering similar solutions.

Google apparently uses the example of buying an airline ticket to explain the CPA scenario. As things stand, I don’t think this would happen. For one, affililate commissions on airline tickets are low and probably impractical for cheap fares.

Google Checkout and CPA

Google’s PayPal-like offering is Google Checkout, which I rarely encounter in real life, where PayPal is still king. Over 12 months ago, Om Malik wrote about some connection between Google Checkout and CPA, and a few others linked to his post, but I haven’t seen the obvious killer connection that is staring Google in its face.

There is some unused space on a Google search results page that could be reserved for CPA without making it too expensive. For example the 8 ads on the right could have some CPA ads interspersed, say in the fourth and lower positions. Or they could start below the least attractive 8th PPC ad but be highlighted to draw eyeballs that would not otherwise be looking here. The usability experts can work something out. Or, Google could use something like Peel-Away Ads for CPA advertisers.

The way Google can win at CPA is to leverage Checkout by offering cheap CPA clicks to advertisers who switch to it exclusively for e-commerce. As Checkout transactions are visible to Google, it would be easy to measure the conversions (Actions). How about a tiered price structure:

• Sale CPA = 50% of Checkout sale amount or Average CPC rate x 5, whichever is lower
• Form Completion CPA = Average CPC rate x 3

I am just throwing some numbers there - don’t take them literally. The final numbers should make business sense to the advertiser.

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One of the hazards of a PPC advertiser is the possibility of Click Fraud. Google is one of a few companies to have tested a Pay-per-Action (PPA) model where the advertiser doesn’t pay for the click, but pays only when the clicker goes to the website and completes some pre-defined action, such as filling out a form or making a purchase.

PPA is a brilliant, albeit partial solution to click fraud that works for websites that have a measurable action. It does not work for information sites or affiliate sites where the purchase takes place on the merchant’s website.

Google has just extended its PPA beta globally, reports MediaPost, but in a staged roll-out, beginning with publisher sites that have turned on Conversion Tracking and have had over 500 conversions this month. Yes, only Content sites will show the PPA ads initially; I imagine this is because advertisers are shying away from the Made-for-Adsense (MFA) sites.

The price for a PPA conversion is defined based on the type of action. The official Google AdWords Blog says, “For example, you may wish to pay $1 every time a user fills out a lead form on your site and $5 when a purchase is made.”

If PPA pricing is similar to the pricing for Google’s Pay-per-Call beta, then I bet you will be paying a lot more to have your ad showing high, in the first ad unit on the publisher page. I will be among the last to be invited to this beta, so you will know the real cost before I do.

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