News out from Google today that they are expanding their Pay Per Action beta on a global basis.  (Full release here).  Although now world-wide, the PPA beta is still limited to the AdSense publisher network and doesn’t touch Google’s own paid search listings.   

As I mentioned in my March post discussing the Google beta, Google has a huge cash cow to protect in its Pay Per Click advertising system, and its move towards Cost Per Action advertising would likely be slow and methodical.  This news didn’t disappoint. 

As long as the PPA program at Google is limited to third party publishers on Adsense, this program will have limited success.  As a publisher, it is far easier for my site to generate click revenue than conversion revenue.  What’s more, Google’s PPC rates are extremely high because of the liquidity of its PPC back end auction.  Google will need that kind of competition in its PPA program to create higher rates as well over time.  

Google is asking its publishers to take a lot of additional risk, something that I’m sure the vast majority of them will be unwilling to do until it is clear that higher ad revenues await.         

Joe Marchese had a great post yesterday regarding the “build it and they will come” ad revenue strategy of most Web 2.0 start ups (e.g., build traffic and the advertisers will come).  I totally agree with Joe that if advertising is going to be your primary revenue stream, it should not be an afterthought; it should be a central part of your strategy.  

We’ve taken this lesson to heart at Jellyfish.  Our Smack Shopping Show was created to make advertising an integrated part of the show content rather than an interruption.  In fact, Smack Shopping is one big advertisment, but end users view it as entertainment.   I attended the recent OMMA show Joe mentions in his post and much of the discussion was centered on this theme.  We think this kind of engaging advertising will be a big part of the future of advertising on the web. 

The challenge for companies like ours is scale.  It is the classic chicken and egg challenge that many Web 2.0 start ups face in trying to convince major advertisers that experimenting with new advertising formats and smaller, more engaged audiences is the future.  It hasn’t been easy, but Jellyfish is finding initial success with several advertisers.  We’ll be working hard in the upcoming months to show that starting with a sound advertising revenue model is a great recipe for success.   

Starting today, Fox network will start running short animated clips about a taxi driver named Oleg during its commercial breaks.  (Wall Street Journal article here).  Will Oleg be entertaining enough to get folks to ease off that DVR button?  I doubt it, but I love seeing traditional media starting to work to catch up with the enhanced power that consumers have to tune out advertising. 

As we’ve been saying at Jellyfish for some time, you need to give consumers a reason to engage with your advertising, not just figure out new ways to interrupt them.  We’ve tried to stand behind that belief with both Smack Shopping (advertising transformed into entertainment) and our main Jellyfish.com search (advertising transformed into cash back savings). 

As the WSJ article indicates, this isn’t the first or the last effort by the major networks to get viewers to pay more attention to their advertisements.  I think the future success of these efforts will depend on whether the initiative is just a slick way to trick viewers into figuring out what the new content is (unsustainable) versus whether it is content that actually delivers viewers some value.  Unfortunately, the Fox effort seems to be more of the former.  From the WSJ article, a Fox representative is quoted as saying “It’s something that pops up that is unexpected and the viewer says ‘What the hell is that?’  It may keep them around for a while longer.”  Yes, the viewer may stop once and watch, but if Oleg isn’t that funny or entertaining, don’t expect that viewer to stop again (or watch the rest of the commercial break, for that matter). 

Oleg, you have a tough job.  Good luck being funny enough to get me to put down my Tivo remote.

The Wall St Journal had some coverage yesterday of the current Ask.com advertising campaign in the UK, where Google dominates with around 75% market share.  Ask.com has created a multi-channel campaign in which they try to create an underground movement to challenge Google’s “Information Monopoly.”  You can check out the website here.     

Unique strategy, to say the least.  It did get me talking about Ask.com, but I don’t think Jellyfish will be taking out ads anytime soon showing how much online shopping is done at Shopping.com, Shopzilla, or PriceGrabber :-)  Stop the Pay Per Click Madness!  Good luck with that one Ask.com.     

Brian Quinton at MultiChannel Merchant published a great article yesterday on the Google CPA beta test (article here).  In addition to some of the same observations I have made previously (here), Brian highlights a few additional potential limitations to Google’s CPA initiatives that I think are worth mentioning.  These include:

• Advertiser Concerns Over Sharing Transaction Data with Google.  Several ad industry experts quoted in the article highlight this as a concern, especially for large clients.  Because Google often controls such a large share of their online advertising wallet (non-CPA based), the advertisers don’t want Google to know their actual ROI on that advertising, out of fear that this will lead to higher rates, more competitors, etc.
• Double Counting Conversions.  Conversions may take place days or even weeks after a user clicks on a Google CPA ad and picks up a Google tracking code.  But what happens if that same user also accessed another tracking link from a third party affiliate network for the same offer prior to the actual conversion?  The result is that the advertiser may get charged CPA ad fees from both Google and another CPA network for the same action.  This is one of the things that I love about the Jellyfish model, since our customers have a built in incentive (through cash back savings), to ensure that they utilize the Jellyfish CPA link immediately prior to their purchase, creating less likelihood of a double counting issue.  

The article is worth the read for anyone following Google’s CPA test.      

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.           

Kudos to Niki Scevak over at Bronte Media for a great post yesterday on the dilemma facing the big boys of Comparison Shopping.  Using Shopzilla’s recent struggles as an example, (thanks to Brian Smith’s coverage of Shopzilla here and here) Niki correctly points out that the gravy train of Search Marketing for big PPC-based Comparison Engines like Shopzilla and Shopping.com may be coming to an end as keyword competition becomes more intense. 

The big four CSE’s (shopping.com, shopzilla, pricegrabber and nextag) found a classic arbitrage opportunity: buy customers from Google, Yahoo! and Microsoft, and then quickly sell them to retailers through multiple paid clicks at higher rates.  This strategy works great when the clicks at GYM stay low, but as retailers get smart and start competing for keywords, these GYM rates rise and the arbitrage dries up.  

The big problem is that these PPC-based shopping engines create limited, if any, customer loyalty.  The result is that the CSE’s have to continue to re-acquire their customers time and time again from GYM.  As paid search rates go up, this strategy becomes increasingly problematic and ultimately unsustainable. 

Brian was just in my office yesterday contending that no CSE has built a sustainable business outside of the shadow of GYM.  It appears that many of the new CSE start ups (e.g., Shopwiki) are also jumping into the PPC arbitrage game.  We are taking a completely different approach at Jellyfish.  With our VPA auction and cash back system, the Jellyfish model creates strong customer loyalty.  But since we aren’t playing the PPC game, competing against our retailer partners and extremely deep pocketed CSE’s, our big challenge is customer acquisition and brand awareness.  Our answer to this challenge has been to spend our marketing dollars creating remarkable, entertaining content through Smack Shopping.  Time will tell whether this approach works, but as the GYM arbitrage model dries up, this strategy looks better every day.               

ComScore networks reported this week that U.S. online holiday shopping surged 26% over last year, with the busiest shopping day (by $’s spent) occurring on Dec. 13th.  

Jellyfish.com customers procrastinated even longer, with our biggest revenue day during the holiday shopping season occurring on December 20th.  Talk about confidence!

We are extremely pleased to have the first Jellyfish.com holiday shopping season is in the books.  Thanks for a fantastic 2006. 

I’ve blogged quite a bit here about the shift in power taking place in advertising.  The traditional advertising model of pushing marketing messages through a few, controlled channels (tv, radio, magazines and other forms of traditional media) is undergoing rapid change.  Consumers, armed with technology to exclude interruptive ads (e.g., DVR’s, Satellite Radio, RSS feeds, and Pop-up Blockers) and an ever-increasing range of choices for their attention (e.g., how many of us substitute YouTube for television?) are taking more control over the advertising relationship. 

And how has the advertising industry responded?  Like a drug addict in a vicious cycle of addiction.  If one interruptive message isn’t working any more, let’s deliver two or three or four messages.  In other words, let’s spend huge sums of money creating new and more innovate ways to interrupt and potentially annoy consumers.  The USAToday ran a great article on this topic last week, Product Placement–you can’t escape it. 

The article describes this desperate cycle in great detail, and cites a list of really interesting supporting facts, including:

• The average city inhabitant is now bombarded with 3,000 to 5,000 ad messages per day, up from around 500 in the 1970’s
• Prime time television commercials on MTV increased 21% last year
• Out of home marketing (billboards to elevator ads) increased to $6.3 billion last year
• Conservative companies like P&G are putting ads inside public bathroom stalls
• Even school kids are being deluged as School Districts sell out to advertisers (including one district selling ads on the outside of its buses)

The solution to this addiction?  The article points to the new advertising buzzword of engagement.  Basically, put away your shotgun approach and spend more money to create value in your advertising, value that will engage the consumers you want to reach.  There a lots of ways to do this.  We are certainly working on this at Jellyfish (when you interact with advertising at Jellyfish it actually saves you extra money).  Others are doing it by creating more entertaining ads.  Lots more innovation is coming.  Let’s hope for all of us that we see more engagement and less advertising ad nauseam in the coming months and years or we may be reading ads on our toliet paper soon.

Brian Smith’s post at ComparisonEngines today has some very interesting news regarding Shopping.com’s upcoming test of a Cost Per Action advertising model at its popular comparison shopping site.

The move by Shopping.com is a small step in what I see as the inevitable march towards Cost Per Action advertising. 

But what makes this even more interesting is the way in which Shopping.com is making the transition from clicks to sales conversions.  Taking a page out of the Google Checkout playbook, Shopping.com is launching their CPA experiment within a Universal Shopping Cart in which Shopping will take control of the entire order process AND a large part of the end customer relationship.  Essentially, this universal cart would allow Shopping.com to become a new type of super retailer-a Shopping.com customer can add products from any merchant in the search engine into a single Shopping.com cart and purchase the products directly through Shopping.com without ever having to go to the retailer’s site.

Why would Shopping.com transition to CPA advertising in this way?  In addition to the benefits of CPA advertising in general, I see three specific benefits:

1. They solve the Pay Per Click search engine loyalty problem.  Currently, Shopping.com and other PPC engines have a difficult time creating loyalty with their existing customers because they lack a means to create a strong ongoing relationship.  By setting up a Universal Cart, Shopping.com can create a new user-friendly feature and establish a stronger, ongoing relationship with each customer.
2. They learn more about each customer.  Customers using the Universal Cart will not only store their own personal data with Shopping.com, they will also share their actual purchasing habits directly with the engine. 
3. They enable Cost Per Sale advertising without having to track sales at third party merchant sites.  This has been a big hurdle to the adoption of CPA advertising; intermediaries have been leery of relying on third party stores to track and report their conversions at the merchant point of sale.  Like Google Checkout, Shopping.com has sought to avoid this problem by taking control of the sale itself.  This provides them with a direct and powerful new way to record the sales they generate and in turn, maintain direct control of their revenue. 

But will retailers go for this?  Will they turn over their customer relationship to Shopping.com in this way in exchange for the accountability of Cost Per Sale advertising?  Brian Smith raises these concerns in his post, and many others have already discussed the push back Google Checkout has gotten for controlling the customer (see Greg Sterling’s post here for example).  It will be fascinating to watch this play out.  Frankly, I will be amazed to see a large number of retailers essentially agree to give up a big part of the customer ownership equation and transition into more of a product shipping/wholesaler entity and away from being a customer-centric retailer. 

There is an alternative way to set up CPA advertising that avoids the customer ownership dilemma being pushed by Google Checkout and now Shopping.com.  Namely, allow the end retailer to continue to control the order process and customer relationship and set up a mechanism to record converted sales at the merchant point of sale rather than taking over the sale itself.  This traditional method has been used for years in standard affiliate marketing and it is the method we use at Jellyfish.  I assume you can guess which method I think is better.  Time (and customer demand) will certainly tell whether retailers decide they are willing to cede ownership of the order/customer in exchange for the sale.