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Pay Per Click Future
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Pay Per Click Future

February 11th, 2008, By

With the ultimate queen of PPC, Google, introducing alternative pricing models such as CPM and CPA, one may contemplate: are we drifting away from CPC models? Are inflating click prices, the click fraud phenomenon or other factors going to bring this hugely successful model down? Well , no more so than shoplifting is preventing brick and mortar stores from operating……in this brief overview I will lay down why I believe the PPC model will be the default and mainstream of online advertising pricing models for the foreseeable future.

 

Automated bidding systems are the only way to sell the bulk of online media

With the huge amount of exponentially growing advertising inventory that spans search engines, portals, social sites, email accounts, SaaS software and all other types of ad-supported online content – the only way to effectively sell the bulk of advertising is by automated bidding systems such as Google AdWords, Yahoo panama, CJ and others. Human sales force is profitably employed only for premium media – which is still best monetized by humans.

 

CPC is the most balanced option among bidding models

The three most common automated models are CPC, CPM and CPA. In general terms CPC is the most balanced option while the CPM is biased towards the publisher and CPA towards the advertiser. A certain mix of these models will co-exist within auto bidding systems, depending on specific practical consideration of both sides in different cases.

 

Online media is heading towards cost/value economic equilibrium

An anecdote: Five years ago, when we started advertising a certain client in AdWords, we were the first, and for a while the only advertiser in that category and paid $0.05 CPC, the minimum then. Today we pay for the same clicks over $5 CPC….does it mean we are not advertising on them or advertising less? NO. We are just making sure that the clicks we are getting are still profitable.

 

With the maturing and adoption of the internet as an advertising platform by most advertisers in the world, more and more online advertising segments are reaching economic equilibrium, i.e. the price tag of click/impression/action is approaching the mean value of the click/impression/action to advertisers. Great opportunities for click arbitrage and very cheap client acquisition, such that existed just 2-3 years ago are rapidly becoming extinct, which is a characteristic of a mature market. Thus smart advertisers will need to create a post click value which exceeds the mean industry value, by optimizing conversion rates, offerings and client value.

 

Systems such as the Seperia edge help integrate between the pre-click and post click data in a manner that allow advertisers to operate profitably in mature market conditions. But it doesn’t mean that if we shifted to other pricing model, we would do away with this challenge. In fact, it might even be amplified using other pricing models.