Google PPA Ads: Perhaps the Biggest Pro of All

Yesterday I wrote about the Pros and Cons of Google's new PPA (Price-Per-Action) pricing model for AdWords, which is currently undergoing beta testing. However, I neglected to mention what may possibly be the biggest pro of all for PPA advertising, as compared to the standard Cost-Per-Click (CPC) model: negating the click fraud problem.

Click Fraud and PPA Advertising

Probably the single biggest drawback of CPC (aka PPC) advertising is the issue of click fraud. This serious problem has resulted in lawsuits involving both Google and Yahoo and various studies have estimated that fraudulent clicks make up between approximately 14-30% of all CPC advertising clicks. Those figures make it clear that click fraud is a significant hidden cost for advertisers.

This really is where PPA advertising comes into its own. Because under the PPA model, advertisers only pay when a predefined action occurs, it makes no difference whether the clicks on the ads are genuine or not, because the advertiser does not have to pay for them. Thus, for any action that involves a financial transaction that is beneficial to the advertiser, the effect of click fraud is, to all intents and purposes, eliminated.

Click Fraud and Non-Financial Transactions
However, PPA advertising doesn't entirely do away with the click fraud problem, though it certainly does reduce it drastically. This is because not all actions for which advertisers are prepared to pay will necessarily produce a financial benefit to the advertiser. If the predefined action involves no cost to the "customer," click fraud may still occur.

For example, suppose I want to advertiser my site so that visitors will subscribe to my free weekly email newsletter, on the basis that x% of subscribers end up making a purchase of a product or service advertised in the newsletter. In this case, the predefined action would simply be completing an online registration form, an action that costs the subscriber nothing. In this case, if someone clicks on my ad in a fraudulent manner and then registers for my newsletter, with no intent of ever even reading it, I will have paid for that action with no actual benefit to myself.

However, the vast majority of desired actions will be ones involving financial transactions, so even this scenario is of limited concern.

Conclusion & Reaction

PPA advertising is certainly a big gun in the aresenal against click fraud and has, for that reason, an obvious appeal to online advertisers. However, even this new pricing model is not without its critics. For example, in a recent post entitled "Is Google doing advertising evil with new model?," Donna Bogatin of ZDNet's Digital Markets blog, examines the questions "Is Google compromising the integrity of the advertising it serves? Is Google now doing advertising evil?"

Sources

1. Click Fraud - Our Research, MarketingExperiments.com (2005)
2. Industry Click Fraud Rate Climbs to Year’s Highest Level at 14.2 Percent, ClickForensics.com (2007)
3. Study: Click fraud could threaten pay-per-click model, CNet News.com (2006)
4. Web of deceit hides behind Google's success, GulfNews.com (2007)
5. Is Google doing advertising evil with new model?, Donna Bogatin, ZDNet (2007)
   

Tags: adwords, ppa