In the last few months there is more awareness in Israel to online advertising based on pay per action (CPA, CPL) pricing type. According to this pricing type the advertiser pays only in a case that the user made a pre-defined action. The common actions are registering in the advertiser’s webpage, dialing the advertiser’s business or buying from the advertiser. The main tool for advertising with this pricing type is the affiliate networks. Affiliate networks provides a marketplace of advertisements, while each advertisement has its price and pricing type.
The affiliates that publish these ads in the Internet are not only the publishers, but also freelance affiliates (I had the honor to be one of those), which publish the ads using different tools, mainly using ad networks (such as Google Adsense). A freelance affiliate publish an ad using an ad network, paying the right CPC, and receives his commission from the advertiser’s sales, made by the affiliate’s referred users.
While this method of online advertising is a developing trend in Israel (not officialy, this is only my instinct), in the US this is not the case. There are a lot of big affiliate networks in the US, such as ClickBank, Commission Junction and more, and this type of advertising is working for more than ten years. While in 2006 the Pay Per Action share of the US online advertising market was 8%, in 2007 it decreased to 7%. The Display Advertising share is 20% and the Contextual Advertising, both in search engines and in contextual ad networks, is more than 40%. Furthermore, the Rich Media share increases all the time, and it is now 9% of the US online advertising market.
Theoretically, Pay Per Action advertising is the ideal method. The advertiser only pays for results, otherwise there is no reason for him to pay. Obviously, if this was the ideal method than most of the online advertising budgets would have been spent on this method, and this was the main online advertising mathod. Why the “regular” methods (Cost Per Click, Cost Per Milli) continue to be the main methods?
First of all, Pay Per Action advertising can’t be defined by time properties, and the traffic (Clicks, Impressions) is totally random, meaning that an advertiser, which works with an affiliate network, uploads his ads to the marketplace, defines his budget and from that moment the entire budget might be used in one day, one week or one year. It is totally depending on the affiliates’ work and the users of course. Pay Per Action advertising gives the advertiser a lack of control feeling, and most of the advertisers want to see planned results (impressions, clicks) with their planned campaigns, while getting users’ traffic permanently since day one of their campaign.
Another important aspect is the people from the other side, the publishers. If the Pay Per Action might be considered as the ideal method for advertisers, than it is really not the case when talking about the publishers. This method actually cancels all the branding that an advertiser gets using a publisher’s website, and any click that might be a potential customer in a month and not only in the following days (on which the advertiser is willing to pay the publisher). These are important results, on which the publisher should be paid. While the advertiser can only gain using this pricing type, the publisher can only loose, and using this method the publisher will never achieve the CPM or CPC revenues. If this is the case, than this advertising method is not equal, and doesn’t create the equal mechanism between online advertisers and publishers, so many publishers are not willing to work with this method. Although the advertisers are the budget owners, the publishers, which work hard to create and maintain their real estate, deserve an appropriate value for their ad spaces.
Affiliate networks and Pay Per Action pricing type are important and good for the online advertising market, not as the main method but as an addition to the real marketing and advertising. From the advertisers’ aspect, this is a win win situation indeed, but they can’t rely on this one only for their online advertising needs. From the publishers’ aspect it is definitely not the ideal tool, but obviously it is better than empty ad spaces.
