Google Tests Alternative AdSense Pricing Model

'Cost-per-action' Charges Marketers Based on Sales, not Just Clicks

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NEW YORK (AdAge.com) -- For marketers looking for the ultimate in return on investment, Google is testing a cost-per-click ad alternative that only charges for ads that generate sales or qualified sales leads.
Analysts and search marketers don't expect the new program to completely replace cost-per-click, but say strong demand exists for more accountable ad systems.
Analysts and search marketers don't expect the new program to completely replace cost-per-click, but say strong demand exists for more accountable ad systems.

The model could potentially reduce cases of click-fraud, which occur when ads are clicked on repeatedly to paint a false picture of their value. The problem is no small matter for the search giants -- Google paid $90 million in ad credits earlier this year to settle one click-fraud suit.

Pleased with test
Google yesterday revealed details of its test with unnamed advertisers. "We are currently testing a cost per action pricing model to give advertisers more flexibility and provide publishers another way to earn revenue through AdSense," The online giant said in a release. "We're pleased with how the test is progressing."

Analysts and search marketers don't expect the "cost per action" program to completely replace cost-per-click, but say strong demand exists for more accountable ad systems. "Marketers love the idea of cost per action because clicks don't mean a whole lot in terms of actual value," said independent search expert Greg Sterling, formerly of Kelsey Group.

Cost per action, while part of AdSense, will exist as a separate ad auction so as not compete directly with Google's current cost per click model, Google spokesman Brandon McCormick said. AdSense is Google's non-search advertising program in which web publishers allow Google to serve text or image ads on their sites.

Fewer commissions for publishers?
"Whether publishers will bite is another matter," said Mr. Sterling, referring to the possibility that cost per action may mean fewer commissions for web publishers. Under the current model, a publisher is paid whenever surfers click on Google AdSense ads featured on their site.

Earlier this week, members of Google's AdSense publisher network were invited to test the cost-per-action system. News of the tests first appeared June 21 when blogger David Jackson posted Google's invite on his site, SeekingAlpha.com, which provides stock market analysis.

With cost-per-action pricing, Google enters the affiliate marketing space, presently controlled by three companies: ValueClick's Commission Junction network, DoubleClick's Performics and Rakuten's LinkShare. "This is aimed pretty squarely at the affiliate marketing space," said Jarvis Coffin, CEO of online ad network Burst Media.

Happy to pay a premium
Some marketers -- like those in the auto and medical staffing industry -- should be more than happy to pay the premium that Google will likely charge for sales leads, added Mr. Coffin. But Mr. McCormick would not say how big a premium advertisers can expect to pay for the new model.

The tests are part of Google's broader investment in new advertising alternatives. This week, Google said it is testing ads on its video site. Under Google Video's existing rules, professional and amateur content owners can charge viewers if they choose. The ad-banners and post-roll video ads from Netflix and Pepsi, which are taking part in the test, could emerge as a significant money-making alternative for Google.
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