Wednesday, March 21, 2007

Google's New CPA Test

This is big news if you ask me:

If I compare CPC (Cost-Per-Click) and CPA (Cost-Per-Action), it is equivalent to me hiring a sales person and paying them for each cold call they make (CPC) vs. paying them for deals they close (CPA). Certainly the average amount I would pay them for each cold call is way less than when they close a deal, but the ultimate is closing that deal...and I will absolutely pay them tons more for that.

What Google is doing here with the CPA test is very interesting. Closing the feedback loop, and having their customers only to pay when a certain action occurs is super smart. I have yet to see what all the 'actions' are that they will support. Needless to say, I see a Google Checkout angle here in the future. If someone clicks on my ad (using Adwords or Adsense), and then purchases from me using Google Checkout, then I'll pay a percentage of the sale for the 'action' and not be charged clicks (this is conjecture - I am not sure how it will all work in the end - but some form of solution such as this just makes a whole lot of sense). As a online retailer/merchant, I could pay $10 for 10 clicks, or I could pay $10 for a $150 sale.

Question is...where will the intersection point lie in terms of when the ROI of CPA meets the ROI of CPC? Will Google provide some form of hybrid CPC/CPA pricing model? It is going to be interesting to watch this all pan out. This is just an AdSense-based test now, but I can't wait to see where it all goes. And how people like Yahoo - who just moved heaven and earth to try catch Google with their Project Panama - respond...

Will this be a long term deal for Google. Yes. Why?

It just makes sense to do this. It is a much better value prop for their Customers, and as we know...he/she who relentlessly focuses on their Customer's success wins in the end. And I am sure Google will find a way to make this just as successful from a monetization perspective as their CPC model in the long term.

This also certainly will make the affiliate providers such as ValueClick and Commission Junction sit up straight in bed at night.

1 comment:

Anonymous said...

In the recruiting "world" CPA ie an interview or actual hire would be a similiar analogy

And perhaps a more useful ..performance based activity