Google deems cost-per-action as the 'Holy Grail'

Marissa Mayer at SES San Jose 2007

(Credit: Chris Smith of Netconcepts)

SAN JOSE, Calif.--On the morning of day three here at Search Engine Strategies ("SES") San Jose, Marissa Mayer, Google's vice president of search product and user experience, gave her keynote presentation. She said a lot of interesting things, but of particular note to me was that she deemed cost-per-action (CPA) "the Holy Grail."

According to Marissa, Google is making moves towards cost-per-action as a more ideal auction-based pricing model, but she also pointed out that it's a long way away.

Cost-per-action may be a new term for some readers, so I'll review it for a moment, and then move on to explain why I think her comment is important.

Through its AdWords product, Google has been testing a version of CPA in which advertisers pay Google only when a certain marketing goal is met. Where cost-per-click means someone pays Google (or another entity) each time a user clicks on a particular piece of advertising, cost-per-action means that someone pays when a user completes a potentially larger and more involved transaction. Google gives the example of an airline paying a certain CPA every time a user clicks on their ad and purchases a plane ticket. Only when both deeds are done does the airline pay, but it will most likely be a larger sum paid than a simple cost per click.

Why, then, is Marissa's statement about cost-per-action so important? There are several reasons. First, CPA has the potential to significantly reduce the occurrence of click fraud--a bigger problem than most pay-per-click advertisers realize. This reduction will occur because the charge on the advertiser is better tied to the advertiser's desired end result. While click fraud detection systems like PPC Assurance will help advertisers get some of those dollars back that were lost through fraud, Google really needs to make it a lot harder to commit click fraud. With the current CPC model, it's easy for fraudsters to invoke a charge on the advertiser with a simple click of the mouse. Conducting a more involved transaction, like the purchase of an airline ticket, is much harder for fraudsters to game.

Secondly, if CPA becomes the dominant advertising model for Google, it will affect the entire search marketing industry. The acquisition of clicks will become less interesting to marketers, and as such, strategies and tactics will change. The harder-to-measure "action" will become central. This could spill over into the SEO industry, where CPC-based organic search solutions like GravityStream and perhaps even ongoing retainer-based SEO consulting packages may, over time, be priced and/or judged in terms related to CPA. In other words, "actions" may be a more elusive metric to track than raw traffic, but it is much more telling as to the ROI of the search marketing spend.

As Marisa said, the evolution to cost-per-action as the default model is a long way away. So pay-per-click will be the prevailing search advertising model for some time to come. Nonetheless, you should start thinking about your search engine marketing in "cost-per-action" terms now, giving yourself a leg up against your competitors in years to come.