Google Tests Cost-Per-Action

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First it was clicks, then impressions; now Google may be expanding to action-based pricing. The company is testing a version of its AdWords product that advertisers to pay only when a certain marketing objective is met.

"We're always looking for new ways to provide effective and useful features to advertisers, publishers, and users," the company said in a statement. "As part of these efforts we are currently testing a cost-per-action (CPA) pricing model to give advertisers more flexibility and provide publishers another way to earn revenue through AdSense."

One potential benefit of a CPA model is a reduction in click fraud. Payments are based on a user clicking on an ad and then performing a specified action, such as generating a lead or purchasing a product. While not impossible to manipulate, that model is harder to game than one that pays publishers for clicks alone.

"Advertisers concerned with click fraud will be some of the quickest to sign up, but it's not going to be the main driver of the program," predicted David Berkowitz, director of strategic planning at 360i. "Google's biggest traction will come from advertisers that are already using CPA with other networks, and have a relationship with Google. Google has a trusted name with advertisers, publishers and consumers. I can't see any reason an advertiser wouldn't at least experiment with this."

Typically, cost-per-action pricing, in which advertisers pay for leads, purchases or customer acquisition, has been the domain of affiliate marketing. Leaders in that industry include ValueClick's Commission Junction network, Rakuten's LinkShare and DoubleClick's Performics. But at least one other search player, Snap.com, has been offering cost-per-action pricing for more than a year. Google's entry into the market could threaten all of these players.

Initial ads are being solicited directly from advertisers interested in lead-generation, not transactions, according to Berkowitz.

Word of the new pricing model began to spread after Internet stock blogger David Jackson reported receiving an e-mail from Google about the test. According to Jackson, Google plans to launch a second "Content Referral" ad network to distribute the cost-per-action ads, so they will not compete for placement with its existing contextually targeted ads.

Google confirmed that CPA pricing is one of several tests currently underway with its ads. A spokesman declined to offer further details about Google's plans other than to say the company was pleased with the test's progress and would continue to gather feedback from both advertisers and publishers.