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.           

A quick thanks to Thomas Claburn and Mitch Wagner over at InformationWeek for their coverage of Jellyfish and our Smack Shopping Show this week here and here.

I met with Tom in San Francisco last week and it was great to see his summary of our conversation about Smack Shopping.  One minor point of correction on the article, however, is that Brian is the CEO of Jellyfish; I’m the President.  No worries though Tom, I appreciate the promotion!  

Mitch wondered about our barriers to entry with Smack Shopping in his post.  I’m not aware of many start ups that have a business model that can’t be copied by the big boys (it all comes down to continuous cycles of innovation and excecution), but I did point out to Mitch that we’ve been pretty active with our patent filings at Jellyfish and are working hard to secure some patent rights to the Smack concept.       

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.               

Piper Jaffray just released an extensive new report entitled “The User Revolution” that describes how the Internet is empowering consumers and dramatically changing consumer content consumption patterns (MediaPost summary of the report here). 

“The historically passive consumer is changing rapidly, not only becoming more informed and confident about purchase decisions, but also increasingly taking control of the consumption of information and content that used to be distributed by networks, studios, publishers and retailers,” said Safa Rashtchy, senior research analyst at Piper Jaffray. “We believe this will cause a significant rise in the prominence of the Internet as a major content consumption and marketing medium.”

In the report, Rashtchy goes on to coin a term for this new type of online content called “Communitainment,” defined as the blending of community, communication and entertainment into a new form of online activity driven by consumers.  The report predicts that consumers will shift more than 50% of their content consumption over the next decade to niche Communitainment formats (e.g., social networking, video and photo sharing sites), displacing traditional forms of media content like TV, magazines and large Internet sites.  This revolution will create a major challenge for advertisers and agencies that need to figure out new ways to incorporate their brands and messages into this new medium. 

As I read the highlights from this report, I couldn’t help thinking about how our Smack Shopping Show is a wonderful example of Communitainment (blog post on Smack here).  Smack Shows combine an entertaining live shopping event with an online community that creates a new form of original online content.  The content is highly engaging, with consumers tuning into Smack Shows for an hour or more each day.  Even more interesting, advertising is the centerpiece of each Smack Shopping program.  Leveraging the unique Jellyfish Cash Back auction, we use advertising dollars to actually create the shopping deals and entertainment that consumers tune in to experience.  By integrating advertising, entertainment and community, Jellyfish is helping drive this “user revolution” in media consumption and helping advertisers reach consumers in new highly efficient ways.  We think Smack Shopping is one great way that advertisers can meet the challenge laid out by Piper Jaffray in their report to stay relevant in the age of Communitainment.   

Since our launch in June of 2006, Jellyfish has been working hard to drive adoption of a new form of online advertising we call Value Per Action that eliminates the waste from traditional advertising and transforms it into added customer savings (you can read about VPA here and our vision of advertising here). 

With Jellyfish taking the high road against traditional forms of biased, interruptive advertising, many questioned how we were going to attract customers and generate awareness for our brand and our shopping search engine.  Not a bad question and one we asked ourselves many times.  Television ads, billboards, and even Google keywords were out of the question.  But what was left? 

The answer for Jellyfish has been something we call Smack Shopping.  The Internet’s first live shopping game show, Smack Shopping combines the fun of a game show with the fantastic deals generated by the Jellyfish cash back auction.  Smack shows run every business day at 12 CST and include multiple Smack Auctions where a limited quantity of products are offered for sale at increasing cash discounts.  Participants have the chance to buy the hottest online products at remarkable discounts, play games for prizes and interact with a virtual community of other Smack shoppers (a Smack by definition is a group of Jellyfish).

To our knowledge, Smack Shopping is the first game show broadcast live to an online audience that actively participates in the event.  There are other companies working on streaming video plus chat, see for example Pete Cashmore’s discussion of Lycos Cinema here and the much anticipated launch of Joost here, but Smack Shopping does more than view pre-assembled video.           

Fueled by Jellyfish cash back, the game and the entertainment is actually advertising, but I doubt any of our users would view it as such.  It’s a customer acquisition strategy that is consistent with the Jellyfish promise.  Instead of spending money interrupting people with traditional advertising, Jellyfish is using advertising dollars to create compelling game show like content that consumers seek out and invite into their lives.  And it is working.  From the beta launch of Smack Shopping on November 1 until today, Jellyfish has grown its user base over 5X, with Smack Shows regularly engaging 10’s of thousands of online shoppers for an hour or more of fun every day.   

Advertising as content.  It is a trend we are going to see more of as consumers gain more control over where they devote their attention and advertising seeks out new ways to be relevant.  We view Smack Shopping as permission-based, engaging advertising at its best. 

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. 

Today is Black Friday, the busiest holiday shopping day of the year.  In honor, we kicked off Smack Friday this morning at 6am (EST).  The Smack Friday promotion includes around the clock Smack Shopping Deals (a new deal every two hours).  The deals and action have been great thus far.  I hope you stop by to check it out. 

As an added Smack Friday bonus, we also have two contests going (here and here) to win a new Sony PS3.  Don’t miss it!

We launched a new program today called the Smack Shopping Deal of the Day.  Here’s how it works:  Every weekday at 1pm EST, we will announce a new product offer on the site and kick off a cash back counter that increases the cash back savings every second until the product is sold out. 

Things were a bit hectic today and we had our share of first day bugs (the time zone problem has been fixed!), but overall the launch was a phenomenal success.  We ended up selling a bunch of iPods to folks with big cash back discounts.  You can see the results of the first day’s Smack deal here.  Starting tomorrow, we will also start to include more specifics on the Smack deal (including the total number sold and the top ten best cash back deals) after it closes for the day.     

The Deal of the Day is the first feature we are launching under the Smack Shopping brand name.  A “Smack” is a group of Jellyfish (like a flock of geese) and Smack Shopping at Jellyfish will help our shoppers find strength in numbers.  We also think it is a great way to communicate the powerful, dynamic nature of the Jellyfish cash back discount.  You can expect more Smack Shopping features from us in the upcoming weeks, so please stay tuned.

I hope you check back tomorrow at 1pm EST for the next Smack deal.   

This past Friday, Jellyfish announced a $5 million private equity round of financing and the addition of retail industry veteran Ralph Dillon to our Board of Directors.

The funding will allow us to move forward aggressively with our vision of online advertising, and the belief that the customer should be a direct participant in the advertising value equation.  We may not execute perfectly over the next few years, but you can rest assured that all of us at Jellyfish will be working extremely hard on our campaign to drive great accountability and value from online advertising.   

We’ve been relatively quiet since our beta launch in late June, but we’ve been working on more than just this funding.  We have several major announcements planned for the upcoming weeks, all of which all oriented around building the concept of Value Per Action advertising and empowering the end consumer.  In fact, you may want to check the site around lunch time this week for a fun announcement and the addition of a new brand name here at Jellyfish.  You’ll be disappointed if you miss it.  Trust me.         

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.