Thursday, 22 March 2007

Google PPA Ads: The Pros and Cons

As you've probably already read elsewhere, Google recently announced a limited beta test of its new Pay-Per-Action ads. This new pricing model will initially only be available to U.S. advertisers and the ads are only going to be shown on AdWords' Content Network, that is, as AdSense ads.

Under the PPA pricing model, publishers will only generate income when a customer completes an action that the advertiser has predefined, such as making a purchase, signing up for a newsletter, etc. Each action is assigned a value by the advertiser and part of the price the advertiser pays goes to the AdSense publisher.

As part of this new pricing model, Google is also introducting a new type of advertisement: text link ads. This is in addition to standard text or image ads.

So, what are the pros and cons of this new form of AdSense advertising for you, the AdSense publisher?


More Control
Google's PPA advertising model has four characteristics that provide greater control and choice for the publisher:

  1. Publishers can choose whether or not they want to have PPA ads on their web sites.
  2. Publishers can choose "between an individual ad, a shopping cart of ads, or a specific term or phrase that is relevant to their site’s content."
  3. The introduction of the new "text link ad" format gives publishers more flexibility in the type of ads being served.
  4. Finally, before the ads start to be served to their sites, publishers will be able to "view the specifics of the ad, including company name, logo and products or services being sold."
I think point 2 is of particular importance. It is a frequent complaint of (newbie) AdSense publishers that they have no, or little, control over the ads being displayed on their sites. With the PPA model, publishers will be able to choose specific ads to display, or ads pertinent to keywords of their choice. This is potentially a big plus for the PPA pricing model.

Potential for Greater Earnings
This "pro" is certainly more uncertain and tenuous than the issue of greater control. However, because the advertiser can place a fairly accurate value on the action, they should be willing to pay considerably more per action than they would pay per click because, in reality, only a certain percentage of clicks ever leads to a conversion for the advertiser.

The issue of clicks and conversions also raises another important point to remember. Under the CPC pricing model, if clicks on the Content Network are less likely to lead to a conversion, the publisher's income per click is reduced as a result of Google's Smart Pricing methodology. Thus, PPA ads are a way of avoiding Smart Pricing.


Uncertainty and Risk
By far the biggest issue on the negative side with PPA ads are the issues of uncertainty and risk, particularly with regards to income. Because this pricing model is new, it will take time for prices to reach their optimum levels, such that they are attractive to advertisers but still providing a decent income to publishers.

Also, and by far the most obvious issue, is the fact that publishers will only earn when an action is completed. This will therefore put pressure on the publishers to ensure that such ads are displayed on pages that are likely to be read by customers actively looking to complete such actions. Thus, PPA ads are more likely to succeed on, for example, product review pages, than on purely informational or educational pages. Thus, it is going to be risky for publishers to place these ads on their sites without any way of assessing the likelihood that clicks will lead to conversions. This is particularly true of pages that are already generating a relatively decent income on a CPC basis.

Minimizing the Risk
So, given the riskiness and uncertainty of PPA ads for the publisher, how can this risk be minimized?

1. Have you Been Smart Priced?
If you have been an AdSense publisher for a while, analyze your income per click over time and see if it has gone down. If so, that means you have probably been "smart priced." That is, clicks on ads on your site(s) are generally not converting well. In this case, PPA advertising is probably not a good choice for you unless smart pricing has so siginficantly reduced your income per click that the value of a single conversion would exceed your CPC income within the time needed to get a conversion in spite of smart pricing.

2. Analyze Your Site's Content
Take the time to analyze your site's content with regard to the action the advertiser is trying to achieve. Are visitors to your site likely to be seeking to do what the advertiser is hoping for? Is your site's content very specific to the content of the ad and its associated action?

If you can answer "Yes" to these questions, PPA ads may be a good choice for you.

3. Test
Test PPA ads on a small section of your site as a trial. Make use of AdSense Channels to analyze the performance of the ads and compare their performance against (1) non-PPA ads on other parts of the site during the same time period, and (2) the peformance of non-PPA ads on the same section of the site prior to the switchover to PPA ads.

4. Are You Unhappy with your CPC/CPM Income?
If so, then PPA ads may simply be worth the risk!

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Update: If you are interested in reading the pros and cons of AdWords PPA advertising from the advertiser's perspective, read my blog post on the subject.

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