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Google Steps into CPA
It was announced today that Google has started offering CPA AdSense units on a limited basis with a “limited group of high quality advertisers”. David Jackson thinks it’s a “ValueClick Killer” and that this “spells the end of ValueClick’s Commission Junction business.”
Though this is certainly an interesting development, I don’t think any of the affiliate network providers need to start shutting down shop, for a variety of reasons; here’s just a few:
1) Affiliate marketing isn’t about dynamically generated text links on content sites, it’s about clever publishers who figure out new ways to drive converting traffic. Coupons, datafeeds, search marketing, and anything else that has happened since 1999 will not be a part of this system, and that’s where affiliate marketing lives for the most part.
2) Affiliate marketing is about relationships, and there is simply no relationship here. There is no way to structure increased commission for better publishers, to deliver affiliate-specific content, or to work together to find traffic.
3) Google makes too much money from PPC to deal with the risk of CPA on a wide basis. They have to trust the merchants to track the sales or leads, after all, and so it wouldn’t make sense for them to extend this any further than very big brands who they trust.
4) The links are still limited to a specific spot on the publisher’s page, and though publishers can now endorse the ad, they can’t do much more than that. And they can’t control the content, and it will be very difficult to make the ads look like they are an organic part of the page, as all affiliate links allow.
AdSense works because it’s PPC. If a publisher is faced with receiving CPA instead, and yet can’t control the ad or do anything clever with it or use their own graphics or text, why would they switch? It’s a bit like CJ’s LMI — affiliates were concerned they would lose control, couldn’t use their datafeeds any more, etc. — but even more restrictive. It may be CPA, but it’s not affiliate marketing.
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I’m not so sure I agree…
1)why do you say this isn’t about datafeeds? don’t they have feeds with Froogle? Couldn’t they decide to do some serious number crunching and put the right product in the right place automatically instead of leaving it to the affiliate to figure out what works and what does not?
2)why do you rule out increased commissions for the best performers? I wouldn’t be so sure. O n the contrary, I think it’s just a matter of time.
3)CJ used to make a lot of money from ppc, too. But they had their hands full of figuring out which clicks were legitimate and which were not and decided to stop the ppc model altogether (only to resume it later on but only in part and only on large and reputable websites). Maybe Google is having as much trouble (or more). Or maybe they think they can make MORE money by offering a pay-per-action model for merchants (big offliners, for example) they trust and they can track with their own technology.
Massimo
1) It would certainly be interesting if Google decided to syndicate their Froogle feeds to affiliates, because thus far Froogle has not been successful. But they would only be able to pay CPA on those feed/products for merchants that allowed Google to track their sales. Like all other aspects of this new network, Google has to trust the merchant to track the sale and the merchant has to trust Google with their sales data.
2) Affiliate Managers give increased commission to affiliates based on performance or better placement. Though Google may build something to facilitate this, it is usually something accomplished via the relationship the affiliate and merchant have with each other, and I’m assuming the restrictions on the way AdSense is displayed on a page may make this much more difficult as well.
3) I do think Google is having problems with click fraud, but I don’t think most merchants care right now. If they start to pressure Google to fix the problem, it will not be too difficult to fix using technology (Litmus Media has a solution, for instance). There is fraud in CPA as well, and it usually requires more than a technological fix — if it could be automated the networks would have figured it out by now; it usually needs a close monitoring of affiliate activity, chargeback rates, cookie overwriting, click to sale time, and other factors combined with transparency into the affiliate channel.
Even if a good percentage of merchants were willing to allow Google to track their sales, they would still have to make a decision between Google and a network provider that had a lot more flexibility in the ways affiliates could push traffic. If they want to use Google and a traditional network together, then they are faced with the potential of double CPA payment on the same sale,and that combined with Google’s inexperience in this space could cost a merchant a lot of money, much more than they are losing to click fraud.
In all cases, Google can only beat the traditional networks if they can figure out a way to scale what the networks currently do to Google’s huge advertising base. They can only scale it if they can convince those merchants to let Google handle the sale, figure out a technological fix to CPA fraud, greatly expand the AdSense system to allow more traditional affiliate links, and allow much closer relationships between advertiser and publisher than is currently possible in their system. On top if that, all good affiliate programs need management, and that management is usually outsourced to the provider or to a third party manager that will require much of the functionality that Google doesn’t yet have. If Google’s goal is to beat the traditional networks, it would make more sense to buy an established provider and scale things that way then to try to convert AdSense into CPA.
Thanks for your reply, Jeff. All in all, I think you make *very* good points. Regarding point 2), now that I think about it a little harder, I think Google will never give merchants and affiliates the opportunity to negotiate increased commissions. If a certain ad is not making enough money for the affiliate, Google will just replace it with a different one (they’re more about number crunching than about human touch).
However, while I now agree with you that Google will be in a different line of business than that of the affiliate networks, I do still think that their number crunching approach could deliver on less wasted space and thus make it both easier (no understanding what works and what doesn’t) and more profitable for affiliates to just hand over their ‘cold’ ‘advertising’ space to Google while continuing to use the affiliate networks for the more ‘personal’ and ‘recommendation-like’ links.
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