Is the Pay Per Click (PPC) online advertising industry changing? Experts say that, as the PPC model changes, its natural progression will cause it to move towards the Cost Per Acquisition (CPA) model. For example, Revenue.net, formerly a sole PPC provider, recently launched a CPA model. Are other providers likely to follow suit?
The PPC Model – Clicks Count
In the PPC model, advertisers pay when Internet users perform a search and click on their paid listing. Affiliate PPC partners then earn a percentage on a per click basis. In order for a PPC ad to be returned, an Internet user must perform an action such as typing in a keyword for a specific product or service or clicking on a link containing a relevant listing.
By paying when there is an active attempt made, ideally advertisers’ listings are exposed to only Internet users with future client potential. However, there is some uncertainty as to who is actually seeing the ad. Therefore, since advertisers must pay for every click, measuring sales and calculating return on investment is a necessary step to ensure campaigns are running at profitable levels.
The CPA Model – Only Conversions Matter
In the CPA model, advertisers pay only when visitors convert into an actual customer. As a result, unless there is a qualifying action, such a sale or signup, the advertiser is not charged. This takes some of the risk out of the equation for advertiser because there is a fixed cost per conversion.
Yet, the CPA model can seem risky for affiliate webmasters. For example, a CPA provider can pay 4-10% for referral of customer who buys something, which is a portion of the cost of the item purchased. So far so good, but if a referred person creates an account and comes back through the same link, the partner does not get anything. If a referred person clicked on the link to buy book about cats and ends up passing on this book, but still buying a different book on dogs, the partner only gets minimal referral revenue.
So essentially, a partner can deliver a paying customer, and the CPA provider makes a decision on what to pay for it. Therefore while the CPA model ensures that advertisers are only paying when sales actually take place, the deals are not usually favorable from a partner standpoint.
CPA and PPC Model Fusion
One could say that CPA is more advertiser-focused and CPC is more partner-focused, but it is basically a question of who bears the risk. In the CPC model, the advertiser pays first and then can see the traffic and measures conversions afterwards. In a CPA model, the partner sends traffic and the advertiser only pays for the traffic that converts. One could say the two models are similar, but with CPC, the CPA cannot be determined until after the fact. A cost per conversion may be higher or lower than the price that was agreed to pay for CPA. Consequently, an element of risk is associated with the CPC model.
This is where a possible CPC/CPA fusion model could come into play. PPC provider Searchfeed.com indicates possible future plans of developing a hybrid model. In this proposed new model, advertisers would pay on a per click basis, while partners would get paid on per acquisition basis. That would then put the responsibility of determining converting traffic on the PPC engine and could work best for all parties involved by ensuring that advertisers receive converting traffic and partners still earn a fair percentage of revenue.
This could also quite possibly quell fraudulent traffic concerns. Since affiliates would be paid a percentage for each conversion, there is no incentive for them to generate clicks that do not convert for advertisers, rendering these clicks useless since if traffic does not convert.
At this point, no true “hybrid” models as described above exist and whether one develops, well, only the future will tell.
Any thoughts on who wins and who loses when using the CPA vs. PPC models? Or if the model should be combined in the future?