DM CONFIDENTIAL: Performance marketing has always been about that — performance — which explains why historically, those servicing the sector, e.g., networks and aggregators focused on the furthest point along the funnel, namely a lead or a sale. It was a point of differentiation, and it lowered the risk as well as aligned incentives.
Google never called itself a performance marketing company, but they often talked about their advertising services and performance-based in that you pay only when people click on the ads. Cost per click is a step down the funnel compared to cost-per-thousand-impression advertising, but it hasn’t traditionally constituted a form of performance-based advertising. In a way, it’s almost ironic that as Google goes further down the funnel, many of those in the performance marketing space are moving one step up the funnel into CPC.
As we mentioned above, the move to CPC isn’t exactly a new trend. Sure Hits, owned by Quinstreet, was the first vertically focused click network and is at least five years old. Everyone knew they were doing pretty well, especially when purchased for north of $30 million.
Still, it took another two years and Quinstreet going public before the idea of focusing on CPC started to make it into the general consciousness of the broader performance marketing space. It was hard for any business to ignore Quinstreet’s numbers. While not specifically broken out, others watched as their CPC business went from $15 million to $30 million to $70 million to north of $100 million. If you didn’t know better, you might think this was a 2004 ringtone business.
In the past six months a variety of competing and quasi competing marketplaces have opened up. The economics can be quite interesting with CPC’s in the $4, $6, and $8+ range for services where the lead prices aren’t much higher. Those prices explain why you’ll find more than a few people slapping up a simple landing page, a new version of the zip submit if you will, where once the user goes on to the next page, they see CPC results. If the affiliate could buy clicks at $.25, for example, while being paid $4 per click on the post zip submit page, they wouldn’t need a super high click on ad, enter zip, click on CPC feed ad conversion rate to become profitable.
We started thinking about that model and the CPC marketplaces again recently when the recent round of news came out about the FTC cracking down on fake news sites. One of the more prominent fake news sites still running is one promoting auto insurance in the manner just described.
The fake news site talks about an insurance site that promises users great savings on their auto insurance. When the user clicks on the link on the fake news site to go to an insurance comparison’s site, they go instead to an insurance zip submit that offers no comparisons only links. Given the prevalence of the media and the purported volume of traffic delivered from this site, the jump page to jump page can work from a publisher standpoint.
But what about from the advertiser’s perspective?
The problem with fake news sites isn’t just the lack of disclaimers and misrepresentations. There is a quality issue. That quality issue gets masked in the world of acai berry because of the nature of the ultimate action — a credit card transaction. The end buyer of the user, the berry maker, has the ability to create was to monetize that user that a lead buyer doesn’t. They can and do all sorts of things to keep that person on just one extra month, with each extra month often making the difference between losing money and profitability.
But what can someone do with a web visitor to their site? Cookie them? Even if they fill out a lead, then what? Call them? None of that gives them tools to make money. CPC is a powerful tool for the publisher, but without proper controls, a potential mess for the advertiser or network.
There is another secret with the CPC business that helps make the economics of running a marketplace so compelling. For many businesses — e.g., auto insurance — those who buy clicks differ from those who buy leads. Big brands buy clicks. They don’t buy leads.
Vertical networks are treated differently than a typical publisher site. They get the search budget. The search budget often has different backend metrics for success than the performance budget does. There is often a premium placed for traffic going to the advertiser’s landing page, and being a brand, they often will assign a greater cost per acquisition target than a typical lead buyer could ever afford.
Despite the increase in cost-per-click networks, the demand from both sides is still strong — buyers of clicks and those with traffic. We haven’t seen the last new entrant by any stretch.
If you build it though, that doesn’t mean they will come. Lead buyers will pick up bad traffic quickly, so it’s best to be super strict to keep the CPCs as high as possible. Once they start to go down, it’s very hard to get them to go back up.
Sites like the above will be the first to be on the lookout for fresh meat to abuse after having been knocked down in payouts from the other networks. Funny business is funny business regardless of the cost per.
This article was originally published at DMConfidential.com. Reprinted with permission.