Much has already been written about Google’s news last week that they are opening up “Pay Per Action” advertising opportunities within their AdSense network (Google Post here).  After digesting the news and the blogosphere discussion, I have the following observations:

This Won’t Change the World Overnight

• Google has a huge cash cow to protect in its Cost Per Click revenue model.  But CPC advertising suffers from some growing problems (e.g., click fraud and search engine spam that will ultimately diminish its power)   Thus, Google is forced to move towards CPA advertising (which helps eliminate these problems), but I’m sure that Google’s moves will be slow and methodical.  This news is a case in point: the new CPA system is being rolled out in beta and is limited to its AdSense network of third party publisher sites (where click fraud and spam are at their worst).  But how quickly will advertisers, and most importantly third party publishers, move towards the model?
• Bad actors in the Adsense system are not going to adopt CPA unless there is an equal opportunity to defraud the CPA model within AdSense.  If a publisher has built a network of click optimized sites, or developed click fraud practices that allow it to fly under the radar, I doubt that that publisher is going to jump at the Google CPA option.  A number of comments in the TechCrunch post highlight the fact that Google’s CPA system will allow a number of different kind of actions short of an actual sale that might create new kinds of “Action Fraud.”  So if the scammers do move over, it won’t help advertisers or consumers.  This is just one reason why Google is also pushing its Checkout product to control the shopping cart and measure conversions with precision. 
• Legitimate third party publishers are being asked by Google to assume a significant amount of additional risk.  With CPC, publishers control the revenue generating activity (the click) on their own site; with CPA, that activity moves over to the end advertiser.  For publishers to jump in, they are going to have to see significantly higher advertising rates and a highly integrated relationship between advertiser and publisher that helps the publisher qualify traffic for conversions.  Google’s CPC system has thrived on a low touch, automated system.  Again, several of the TechCrunch post comments highlight this disconnect.  Google will need a long term, sustained effort to convince publishers that this added risk is worth it.  I suspect this will take several years.      

Google’s CPA System Will Create Some Benefits for Advertisers and Consumers

• Jellyfish was the first comparison shopping engine to adopt a 100% Cost Per Action ad model, so we are happy to see a giant like Google help to push mainstream adoption of CPA.  As Google’s CPA system gains traction with legitimate publishers, the scam publishers may start to be isolated in the CPC system.  If this happens, Google’s AdSense model may reach a tipping point where CPC rates start to drop because the quality publishers are no longer subsidizing the scammers.  This will help make the Internet a better place (To this point I disagree with Scott Karp’s conclusion that Google’s CPA network will create direct response hell online.  It is easy to dupe users into clicking on things, you have to deliver value to them to get them to sign up for a service, order a product, etc.)   

Consumers Still Aren’t Getting the Full Value of their Attention with Traditional CPA

• This is why Google’s news ultimately lands with a thud.  If we assume Google is wildly successful with their CPA model, it may help elimiate the search engine spam and click optimized sites that frustrate untold online consumers.  This is a good thing for consumers but it doesn’t go nearly far enough to deliver consumers the true value of their attention online (see my post on Buying Attention here).  At Jellyfish we take Cost Per Action one step further to create Value Per Action, which directly rewards consumers for making purchase decisions on our site.  In the Jellyfish VPA model, as advertisers bid higher and higher rates to reach buying consumers, the end consumers share directly in that competition for their attention through greater savings.  This won’t happen in Google’s CPA system.  As advertisers compete for CPA opportunities and bid up CPA rates, Google and third party publishers will make more money, but the end consumer will still be completely disconnected from this significant value creation.  Ultimately, this makes Google’s CPA moves of marginal benefit to online consumers.           

I’m sure you’re familar with the Gross National Product, that all important measure of the value of goods and services produced in an economy.  But how important is the GNP in today’s online economy?  I’d argue that the Internet is running a bit fast and loose, somewhat unconnected from the realities of the GNP and its focus on the actual sale of goods and services. 

So you may be asking, if web sites aren’t measuring the sale of goods and services online, just what are they measuring?  The focus today, thanks to the remarkable success of Google and the Pay Per Click ad model, is on the click.       

Selling clicks is big business online.  A USAToday article titled “Google Search Ads find momentum” provides a great snapshot of this click selling bonanza and how Google Adsense has allowed millions of sites across the Internet to get into business of producing and selling clicks.  Citing figures showing the click market growing to over $20 billion, the article states pointedly, ”No wonder people are celebrating.” 

But how long will the party last?  The Pay Per Click model certainly advanced advertising by aligning it to a measurable action (the click), but how long will people be able to get by selling clicks without worrying much about whether the clicks they produce are actually converting to the sale of real products or services?  In otherwords, can the Gross National Click exist outside of the Gross National Product?  Will economics textbooks in the future replace their “Widget factory” hypo’s with ”Click factories”?  I don’t think so.          

At Jellyfish, we believe that the Internet is rapidly moving from a click-based economy to a conversion-based economy.  Five years from now, we will look back at this time as the zenith of the Gross National Click (GNC) economy online.  Google moved advertising from impressions to clicks, but at the end of the day it is the sale of goods and services that makes the world go around.  And the Internet makes it possible to create a new, more accountable kind of advertising that is directly tied to the GNP, and not just the click.  

Let’s look at some of the cracks in the wall that will ultimately bring down the Gross National Click (GNC) economy.  

Click Fraud.  Click fraud is quickly coming to the forefront as THE major threat to the GNC economy.  Lawsuits and studies estimating the size of the problem have the search engines on the offensive, but I’ve yet to hear anyway to effectively solve the problem in the Pay Per Click system.  The engines may play a cat and mouse game with the fraudsters, but the problem won’t disappear.  A recent article in Business Week sums this up nicely. 

Syndicating Clicks.  The syndication of click selling through programs like Google Adsense provide major fuel to the click fraud problem, unleashing armies of website owners with a financial incentive to join in click fraud.  But just as importantly, the sydication of the Pay Per Click system has also created a kind of black hole of sites that may not engage in fraud, but still have no direct incentive to drive sales for advertisers and are not held accountable if their sites don’t drive sales.  The Made For Adsense sites that do the minimum amount to create a click-selling site are the obvious example:

Adsense has created a financial model for these sites to work and remain almost completely unaccountable to advertisers.  And the more this occurs, the more of a threat we see for the Gross National Click economy.