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.           

As you might imagine, I read with great interest a summary of Google’s new payment service release today under the name Google Checkout. The benefits are pretty limited at this point and you can read great summaries of the service at Search Engine Journal, Search Engine Watch, TechCrunch, and SearchBlog, among many others.

Although Checkout may not be a PayPal Killer, I think the big take away is that Google will now be watching and collecting buying data from its Checkout customers and will have the ability to track user behavior from their first search to their final purchase. Elise Ackerman at the Mercury News summed this up nicely in her article today:

Since its birth more than five years ago, Google’s mighty Internet advertising machine has suffered from a major flaw. No matter how much information the Mountain View company collected from users of its popular search engine, it has no idea if, at the end of the day, people bought anything after searching for “Nike shoes” or “hip sunglasses” or “doggie sweaters” or “Toyota Prius.” That will change today, when Google launches its own payment service called Google Checkout.

Is this a bad thing? Forrester analyst Charlene Li predicts today “an eventual backlash” because “Google wants the monopoly on your information” and expressed concern that they “could fall into a situation where they’re the next Microsoft.” But I don’t think Google has current plans to do anything evil with this data (sorry, I couldn’t resist). What they will do is use it to extract more and more money from the advertisers trying to reach you. Again, Elise Ackerman sums this up nicely in her article:

If Google checkout is successful, the company could reap big rewards. The transaction data for each person who makes a purchase, combined with their search history, could lead to advertising that takes into account their favorite stores and preferred brands. The more targeted the advertising, the more advertisers are willing to pay.

Marshall Kirkpatrick in the post at TechCrunch, sings a similar tune, saying:

Maybe someday all of this data on my shopping habits will be used to better serve ads I’m interested in via Minority Report type billboards, Google Style.

Is this a fair trade off? I give Google all of my purchase data (what I buy, when I buy, how much I buy) and they use it to benefit me by: 1) offering me the convenience of Checkout; and 2) giving me more advertising that will be more targeted to things I’m potentially interested in (to quote Marshall Kirkpatrick “Minority Billboards”). And you know what Google gets? They get to jack up their ad rates, charging bigger dollars to the companies that have to pay to reach you because you might buy what they are selling. I’m pretty sure Google has done the math here and fully expects their increased ad rates to outweigh the cost of the Checkout service. And you, as the end consumer will have no idea what that increase will be because Google’s advertising market isn’t transparent.

At Jellyfish, we don’t think this is a fair trade off. Targeted ads are nice, but the ad’s Google will likely show you are from the advertisers that paid the most to get to you (Just because company X outbids Company Y to get in front of you at Google doesn’t mean that company X is the most relevant for your needs). And most importantly, you won’t benefit from the competition that is fueled by Google having access to your buying information (or what we would call your historical record of buying intentions).

At the end of the day, I think Google is doing some major free riding on the extreme value you create by allowing them to store and sell off the database of your buying intentions (e.g., your purchase history) to the highest bidding advertisers.

We intend to do this much differently at Jellyfish, because with our VPA advertising we always share back at least half of the advertising dollars that a merchant pays for your attention (both historical buying intention and present intention to buy when you search for a product at our site). Thus, anytime a merchant pays more to get your attention at Jellyfish, you will get a direct, tangible benefit in the form of lower prices. It’s the way we hope to show consumers that when it comes to their buying activity and attention, there is a better way.