• by Ross Fadner , May 24, 2004

Marketers, long frustrated by not knowing which half of their ad spend is wasted, have found a new ally in pay-per-click advertising models. Search and contextual marketing are good examples of this, but often, marketers have to bid against each other for placement.

Performance-based marketing may be the next step in the evolution of pay-per-click advertising. Because of its direct response-oriented nature, many sponsored links providers--from Google with their new Smart Pricing plan to smaller sponsored players like Kanoodle--are also beginning to incorporate performance into their placement models.

ValueClick subsidiary Commission Junction unveiled a more Darwinian variation of the performance-based model at the Ad:Tech conference in San Francisco Monday. Called CJ Evolution, the new product will make placement entirely contingent upon performance, placing optimal importance for advertisers on creative.

The program uses optimization technology that grants more frequent exposure to ads that perform well while reducing the exposure of ads that perform poorly on certain publisher's Web sites. Currently, only text ads are supported by CJ Evolution, but Jeff Pullen, Commission Junction's general manager, says he sees an "opportunity to expand in the future. (CJ Evolution) is meant to be a complementary channel that is built on performance." He adds that the program is less an alternative advertising channel than an optimization tool. (The program) looks at conversions--"if it happens to be a contextually relevant place, great," Pullen says.

Pullen maintains that Commission Junction will continue to evolve into a primarily cost-per-acquisition (CPA) network, even though advertisers currently bring their offer to Commission Junction for participation in CJ Evolution.

Initially, Pullen says, the placement process for advertisers in the program is somewhat random, but as performance metrics are built, the program automatically optimizes the campaign for advertisers and publishers by placing ads on sites that perform well more frequently and by reducing placement on sites that perform poorly.

Pullen says that beta-test results from advertisers and publishers have been "very positive." Commission Junction declined to disclose the names of participating beta-test companies. For the publishers, the process for admission to CJ Evolution is selective. Publishers are pre-screened; the program is generally reserved for top-tier publishers.

As with most pay-for-performance models, direct response advertisers running concurrent search and affiliate marketing programs stand to benefit most from this type of program.

Advertiser participation requires no additional up-front fee, and advertisers can choose to set caps as well as increase or decrease their spend at no additional cost.