Google Testing PPA AdWords

    March 21, 2007

It’s been rumored for a while, but it’s finally being tested, as Google has announced a beta program to test pay-per-action (PPA) AdWords bidding. The Snap search engine has done PPA for years, but obviously it is big news when Google does it. I first speculated on this two years ago when Google acquired the Urchin analytics firm (now Google Analytics), but it’s finally here. What does it mean to search marketers?

First, if you’re concerned about click fraud, this would be a way to eliminate it. As I wrote long ago, there’s no ability to create click fraud if you have to buy the item. Since then, folks have reminded me that another kind of fraud might exist, depending on how Google implements their system—crooks could click on your ad, buy your item, and then return it. Google might not refund its per-action fee. I’ve seen some references to this being called Click-Order-Return (COR) fraud, but we have too many TLAs (three-letter acronyms) as it is, so I prefer to call this "return fraud."

Andy Beal believes that this announcement is a harbinger of Google becoming an affiliate network, just like Commision Junction. Kevin Newcomb at Search Engine Watch agrees, but Google has denied this. It’s interesting, though, because by positioning itself as an affiliate network, it would make sense for Google to have a closer relationship with affiliates than it does with advertisers, allowing return fraud to be more easily policed. You could refund the per-action fee and then be in a position of having to police your affiliates so they don’t fraudulently claim an item was returned when it wasn’t. (It’s a complicated world out there, huh?)

But if we can believe Google’s denials (Andy does not), then Google would be having a much more hands-off relationship with its advertisers (rather than treating them as affiliates) just as it does today. That would make Google less likely to refund money for return fraud, I think, but we may have to wait and see what they do.

Now understand, return fraud is a lot bigger pain to pull off than click fraud—someone has to receive the package and send it back and ensure the money was refunded, so you’d figure that it would occur less than click fraud does. My take is that, for search marketers that really want a "pay for performance" advertising model, PPA could be a godsend. No longer would you need to carefully calculate how much you should bid for traffic—now you can just provide a cut of your transaction profit (or a cut of your LIfetime Value if you are savvy) and you can be sure (in the absence of return fraud) that you are making a good business decision.

Regardless, this is an important step in the industry because advertising models should be about customer choice. You should be able to pay per impression or per click or per action—your choice. Google is trying to make it happen, which is a good thing, regardless of how it turns out.