Google's Auction

Much was made of Google’s recent announcement that they’d be introducing an auction-based cost-per-action business model (in fact – I made much of it myself over at MediaPost’s Performance Insider (reg req’d). Most of the coverage I’ve read tends to be centered on how Google is yet again bringing new innovations to the marketplace. If only that were true. Cost-per-action is not new.

Indeed, it is a proven part of the advertising arsenal, getting its own line in more and more marketers’ budgets. So if cost-per-action is not new, is there anything notable in Google’s announcement?  Yes and no.

While Google may not being breaking any new ground, they are speeding cost-per-action to the forefront in the online advertising space. For that we should all be grateful. However, I think the most interesting part of Google’s plan is also the least clear – how the heck will the auction work?

An auction for keywords is simple to follow. A keyword is a commodity, after all, and commodities are easy to price and bid for.

An “action” is something else entirely. It’s just hard to see how it all will work.

Let’s assume there are two companies, A and B, and both are trying to fill up a seminar. Company A uses seminars to sell $5,000 training courses, while Company B uses seminars to get leads for mortgage origination, for which it receives $200 per mortgage.  These companies would no doubt value seminars differently. How are they to be equals in a bidding process?

And let’s assume the action is something more in line with the common perception of cost-per-action – a sale of a product or service. How will Google know what was sold? The honor system? Will it require that they somehow get integrated into a company’s back-office financial software?

And what about fraud? For an enterprising – if unethical – individual, making a little extra on the side will be pretty easy

Let’s assume Jimmy the college student is excited because Spring Break is about to arrive, and he has a big blow-out to Mexico planned with 10 fraternity brothers. Jimmy has built a pretty successful blog about college sports and his school’s Greek community.

Google introduces Jimmy to its cost-per-action program, and, strapped for cash before the big Spring Break trip, he has an ethical lapse. He sets up his blog to begin posting a student loan ad that brings with it a $50 action for every sign-up to attend a seminar. Seeing some easy money, Jimmy encourages his fraternity brothers to respond to the ad, and before  you know it, they’ve “raised” enough money to cover their beer tab, and the student loan company gets nothing but a bill.

A larger fraud would likely get the attention of Google’s click fraud police, but something like this is likely too small to be noticed, and very likely too small to be addressed.

In the end – a big thank you to Google for bringing the next generation of performance advertising to the forefront. But please Google – make it more clear how the whole thing works, and how you’ll prevent click fraud.

I should note that I have nothing against Google – so if a Googler reads this and finds my wonderings unnecessary, please reply.

Comments

[peter caputa]

Good point. I never thought of the fraud issue when CPL ad placement is automated on 100s of thousands of small sites. People think click fraud is an issue. CPL fraud could be much bigger.

Re: your event examples, when we do CPL deals with publishers for events, we always charge for the event. If it's a sales seminar, we'll make sure the people are getting a meal or the event producer is giving something away AT the event that's equal or lesser value, like a gift card. This way, people are sure to show up.

It seems like CPA will be a much bigger potential for distribution through adsense. Or maybe they just won't distribute CPL deals the adsense network. Or maybe they won't share what ads are CPL, CPC or CPA. Still risky, I guess.