Google to provide a pay-per-action advertising model

In the past if you wanted to advertise using Google you went the pay-per-click (PPC) route, having Google place your ad either on its search results page in response to a search term you had bid on (the AdWords model), or on a web page in response to some context-relevant content on that page (the AdSense model).

In either case, you as an advertiser paid Google only if a web visitor actually clicked on your advertisement. If you wanted to place ads where you would pay the website publisher only if the clicker actually performed some action (such as buying something, subscribing, or providing information) you could use other services. Prominent among these pay-per-action (PPA) services are secondary search engines like Snap, PPA broker Turn, and affiliate marketing networks like Commission Junction and LinkShare.

In March, Google announced that it was putting a pilot PPA product on the market. That’s huge news, because Google is such a dominant player in online advertising. The implications for advertisers are significant. A PPA model lets you pay only on successful conversion of the traffic that your ad sends to your site, instead of making you pay only for the clicks themselves. Many PPC ad clicks are of no value – the clicker made a mistake, was merely curious, or was deliberately fraudulent. Or your landing page and site structure were poorly designed and just got in the way of them doing business with you.

With PPA, you don’t pay for those clicks that go nowhere. But the sites hosting your ads expect something in return, namely a bigger payoff when they do deliver a visitor who actually becomes a customer.

Unlike with Google’s PPC product, where sites displaying the ads don’t get to choose the ads and are not allowed to encourage clicking those ads, sites displaying PPA ads are being given a lot more ability to both select the ads, or a basket of ads, and urge people to click. So expect much more traffic to sites, and correspondingly lower conversion rates – but higher ad ROIs.

Because a PPA payout depends on clear policing of what action (if any) was actually taken, it requires a system that can automatically monitor and verify those transactions. And because of this additional layer of technological complexity, PPA has not been widespread on the web. Till now. Google has the clout and the tech muscle to make this work, and work well, and the existing PPA players must be expecting their businesses to feel a great deal of pain once Google gets into full swing.

For small advertisers, Google’s PPA could be a boon, the equivalent of paying a small sales commission only on closed deals rather than their existing PPC approach which involves paying each time a visitor wanders in through their virtual doors.

Google is also testing ads that appear in text, similar to those currently run by Intellitext. These ads appear as words or phrases that have been double-underlined. Hovering a mouse cursor over those phrases pops up a small box containing the advertisement. As more and more online content is read through RSS feeds, the importance of in-text ads grows, so it is not surprising to see Google move into this space.

New Google AdSense Policies

AdSense is the Google service that allows websites and (more typically) blogs to host small pay-per-click text advertisements that are dynamically served to their pages depending on the context of the page's content. Keywords that happen to appear on the page trigger the specific ad: write an article about boats, and an advertisement for boats will appear in the Google AdSense placeholder. If a reader clicks the ad, the page owner gets paid a piece of Google's pay-per-click fee.

As with everything Google, there are policies. The AdSense policies have now been updated and made more reader-friendly, having not changed since March last year. Here's what's new:

By far the most significant change is that Google no longer allows its AdSense ads to appear on any site (not just page) which also hosts other non-Google advertising that is formatted to look like AdSense advertisements. Here's their language: "In order to prevent user confusion, we do not permit Google ads or search boxes to be published on websites that also contain other ads or services formatted to use the same layout and colors as the Google ads or search boxes on that site. Although you may sell ads directly on your site, it is your responsibility to ensure these ads cannot be confused with Google ads."

Effectively, Google is enforcing a design trademark on its ads, presumably because it feels that the "look" of its ads conveys some kind of quality to potential clickers, or more likely because it wants to maximise the click rate by eliminating competing ads,particularly other contextually targeted advertisements.

There are other changes that affect sites who host AdSense ads. Sites may now place up to two AdSense referral links or buttons on a page per product referred. And referral offerings must be made without requiring users to provide any information such as e-mail addresses from users.

Many blog authors make significant amounts of money from AdSense, and will go to extraordinary lengths to increase the click rate and therefore their income. So Google is now also regulating the use of images next to AdSense ads. So sites may not draw attention to ads by, for example placing large "Click here" arrows next to the ads, or place any images next to the ads designed to mislead users.

If you use a Google search box on your site, you can now also place an AdSense ad placeholder on the search results page.

Finally, Google has broadened its previous policy which forbad the placement of AdSense ads on pages that contained any media such as MP3s or newsgroup postings to include "web pages with content protected by copyright law unless they have the necessary legal rights to display that content." So don't expect to see AdSense ads on YouTube any time soon!

Google Updates Its Ad Quality Scoring

Google is rolling out an improved ad ranking algorithm for AdWords, with a little more transparency than before. They actually now give you a vague idea of what your ad quality score is.

AdWords is the system that places small text advertisements on a Google search results page or places text/image ads on pages in thousands of AdSense enabled sites around the world. (This is relevant for South African advertisers, because Google lets you target the pages on which your ad may appear by location -- so your ad could show exclusively on South African websites if that was your wish).

Those ads are designed and created by advertisers, and are associated with keywords that the advertiser "bids" for. When a searcher enters a search phrase that is or contains a keyword that an advertiser has bid for, the relevant ad appears as a "sposored link" in the upper right hand corner of the search results page.

But many people will bid for the same keywords, so several ads may appear. And the ad at the top of the list is not necessarily the one whose creator has bid the most for the keyword in question.

The Google algorithm takes more than just bid level into account when deciding which ads get precedence -- the "quality" of the ad plays into the ad ranking as well. (If that sounds confusing, it's because you are not supposed to know how it really works -- that way advertisers can't cheat the system and Google's competitors can't easily copy it).

One of the elements that go into the AdRank calculation which scores the quality of your ad is the quality of the landing page -- the page searchers get to if they click your ad. (The other elements are the actual click through rate your ad gets on Google, and the relevance of your keyword and ad text). In theory even if your bid is low you can have your ad displayed at the top of the list if you have a very high quality score, say because you have a good landing page. And, if your quality score is high, you can find yourself paying less per click than the ads placed below you.

This is because Google does not charge you the maximum you have bid for a keyword. You pay only one US cent more than you would have had to to pay if you were the next highest ranking ad.

Here's an example of how it works. Remember that you never actually get to know what your quality score is -- Google will tell you that it is good, average or bad but will not disclose the number. In any event, the score is recalculated every time a relevant keyword search is run.

Joe's Garage bids a maximum cost per click of $0.40 for the keyword "fanbelt"
Jill's Garage bids $0.65 for the same keyword.
Pete's Garage bids only $0.25.

Joe has a well worded ad that gets better click rates and has a good relevant landing page. Jill has not taken much care over her ad, doesn't get a lot of clicks, and sends clickers to her home page. Pete is somewhere in between. Google does its quality calculations and produces Quality Scores of 1.8, 1.0, and 1.5 for Joe, Jill, and Pete respectively.

Google multiplies Joe's maximum bid by his Quality Score and gives him a ranking number of 0.4 x 1.8 = 0.72.
Jill's ranking number is 0.65, her maximum bid (0.65) times her Quality Score (1.0).
Pete comes out as 0.25 x 1.5 = 0.38.

Joe goes to the top of the list, since he has the highest ranking number, with Jill second and Pete third. But what do they actually pay each time their respective ads get clicked?

For Joe to be listed in second place he would have to pay Jill's ranking number divided by his quality score (0.65/1.8), or $0.36. But he's ranked above her, so he must pay one cent more, or $0.37. Note this is lower than the $0.40 he actually bid.

For Jill to be listed in third place she would have to pay Pete's ranking number divided by her own quality score (0.38/1.0), or $0.38. But she's ranked above Pete so she pays a cent more, or $0.39. That's a lot less than she bid, but it is more than Joe is paying in the top slot.

Pete has nobody below him, so he pays only his minimum threshold fee (in this case only 4 cents) every time someone clicks his ad.

The moral of the story is that you can really lower your CPC rates by making sure you create good ads and use focused relevant landing pages. And being third on the list can be a really cheap option..

To become an instant expert on AdWords, go to Google's AdWords Learning Center".