Google Incubating Performance-based Search Ad Model
The ads are not billed by the click, similar to the traditional pay-per-click (PPC) model, but rather when the person purchases the item. Industry insiders call this "performance based," meaning that Google would get paid when someone made a purchase through the ad.
In March at The Kelsey Group conference in Los Angeles, Googler Chris LaSala painted a picture of where the search engine would pull suggested price and availability for products at local businesses to serve up on the Web in query results. At the time, Google only indexed about 10% of the available digital content from small companies in local markets. It appears that the Mountain View, Calif. company has tapped into the large retail market to develop a related product.
A Google spokesperson confirmed the "experiment," but declined to provide details on the product listings because it has not gone live. "At Google, we're constantly experimenting with new features, tools and visual representations to improve the user experience and usefulness of our ads," says a Google spokesperson. "In accordance with that philosophy, we're planning a beta test to show richer product information in the ads for shopping-related queries. This test will only be visible to a small number of U.S. users."
Mark Simon, VP Industry Relations at Didit, says Google called the experiment a way to create closer relationships with advertisers. The performance model would include affiliate network vendors.
CPCs have become competitive and advertisers want a different business model to compete, Simon says. "Although we're not certain, Google would set it up similar to a commission structure, so they would not be paid when someone clicked on the link, but rather if someone converted or purchased the product," he says. "Advertisers believe the cost per acquisition model is beneficial to them, but many times that's not reality."
Where ads may place in search results has Simon wondering whether the value of this new model can compare with search ads. Supposedly, placement will still rely on a quality index or score. Advertisers may find the CPA model attractive because they won't pay the "rather large bills" attached to PPC ads, but rather when someone makes a purchase.
That can become both an obstacle and a benefit, according to David Berkowitz, director of emerging media at 360i. The new model could have a higher commission rate, which will probably make advertisers question whether the CPA model can provide a high return on investment (ROI).
There are lots of benefits, Berkowitz says. "For retailers betting on a CPA model, this is a no-brainer for testing," he says. His argument is that Google doesn't need to prove the quality of its search inventory, only how well the model will perform compared with other CPA offerings from companies like Microsoft's Bing.