Online marketing has moved through two prominent business models: cost per thousand (CPM) and cost per click (CPC). CPM dominated in the age of volume, when marketers saw the Internet as the second coming of TV, and wanted to get their message -- or their flaming, spinning logo, as it were -- in front of as many people as possible. This model guaranteed a marketer a certain number of impressions and marketers were happy for a while, until they looked into how many people paid attention to their ad and saw that, opposed to TV, everything was measurable online.
Soon, marketers leveraged this capability and gave rise to the age of measurement. CPC took control as the "logical" method. Yes, there were still plenty of marketers who used CPM, but this new model, where marketers pay each time users clicks on their ad, gave them the performance metrics that, supposedly, would enable them to know the value of every dollar spent. Google became the king of the jungle with the CPC model (though it just began another round of beta testing for a CPA feature.)
While this model still dominates, dissatisfaction is growing. Marketers are finding that such detailed measurement gives rise to even more detailed, and never ending, campaign management, and all of the costs and headaches that go along with it. At the same time, because publishers built sites to encourage clicks, rather than get consumers what they want, consumers have grown jaded.
As online marketing continues to evolve, we must move into a third epoch: the age of results, where the CPA model reigns.
Marketers and publishers have long recognized the power of the online consumer; however, the older models ignored the consumer for the most part. The CPA model, however, puts the consumer at the center. Everything is created not only to get consumers where they want to go, but also to take action -- as marketers only pay and publishers only get paid if consumers truly convert, not just click.
As mentioned above, the cost of driving traffic has become so expensive, due to Google's CPC based pricing, that smaller players can't afford it, especially when low click quality and click fraud are thrown in to the mix.
The most important idea of the CPA model is that the risk is on the publisher to deliver not just qualified users, but tangible results (purchasing, signing up for services, etc.) to marketers. If a CPA publisher sent 1000 people to walmart.com and no one bought anything or engaged with the site, the marketer wouldn't have to pay anything. If that happened with a traditional CPC publisher, the marketer would have to pay for every one of those clicks -- regardless of whether a consumer makes a purchase or signs up for a service.
Another advantage of the CPA model is lower overhead. CPC costs the publisher time and effort to optimize feeds and manage deals with all of their vendors. Marketers must continually change the mix and take out what isn't converting, because they pay for it regardless. In other words, there has to be active management in a CPC model, whereas in a CPA model, nothing happens until a purchase (or other engaged activity) is made. With a CPA model a marketer can have an entire range of messages, products and vendors with no risk.
With CPC and CPM, marketers wind up spending too much effort on maintenance and the publishers are not given any incentive to change, because the models work for them. However, new CPA sites are not only generating desired actions for marketers, they are showing that the model is sustainable. CPA has already gained a foothold in the commerce side of online marketing, and the success being seen there is sure to be felt on the advertiser side in some way.
As with every new era, the new does not automatically replace the old. In this age of results, CPA is not the sole player. CPM and CPC are still viable and effective models for many types of marketers and publishers. However, we must remember that one of the big selling points of marketing on the Web is measurement, and if that is the case, why not pay only for what can be measured to work every time?