Can Everyone Win in the CPA Movement?

CPA or cost-per-action ad buys are nothing new. They’re the epitome of the performance-based model: the advertiser doesn’t pay unless the agreed upon action (click-thru, sale, registration, subscription, email collection, etc.) is obtained. No one would really dispute the value of CPA ad buys to the advertiser, but to date, publishers have been reluctant to embrace this model, primarily because it offers much less assurance in the way of revenue. Let’s take a closer look at the controversy surrounding the CPA movement, some of the players, and if there’s a win-win in this for everyone involved.

The Controversy

CPA deals developed as an alternative to CPM (cost-per- impression) when banners results started plummeting (average click-thru rates on banners now hover at about 0.33%). In the traditional world, ad space is typically sold on a CPM basis, as determined by subscribers, viewers, or recipients; and there are auditing bodies that advertisers can turn to double check the claims of the media itself.

Contrarily, auditing of web site traffic is still unsettled. Nonetheless, the fact that online advertising response rates ARE so measurable has actually been a hindrance — online publishers are held to a higher standard than their off-line counterparts. Companies spend millions of dollars on television campaigns, for example, with no true accountability on the part of the medium for the campaign’s effectiveness.

There’s also the branding vs. response debate. If an ad doesn’t generate an immediate click and action, does that mean that there is no long-term effect from the viewer having been exposed to that ad? If publishers, anxious to generate any ad revenue whatsoever, accept CPA deals, will they be diluting the market and shooting themselves in the foot long term? Can they really hope to sustain themselves this way?

Those who oppose CPA deals contend that there are too many factors out of their control — ad creative and copy, testing, and buying less than premium placement with too little frequency, as examples — that can lead to the failure of a CPM campaign. Many have chosen to outright refuse CPA deals. What’s the landscape going to look like for these publishers as we move forward?

The Players

Publishers:
These are the folks that produce the web sites and/or email newsletters for which the advertising is sold. Well known examples include AOL, Yahoo, eBay & the NY Times Online.

Advertisers:
Anyone who wants to promote themselves online. The Top 25 online advertisers can be found at Cyberatlas.

Ad Networks:
Those who “broker” selling ad space for the publishers. Typically sites are placed into interest categories, which enables an advertiser to hone in by target audience.

Media Buyers:
They negotiate buys on behalf of advertisers, as such, typically earning a commission.

Affiliate Exchanges:
Where advertiser meets publisher in the purest form of CPA offerings, the affiliate program. On their newly-designed site, one of the best known affiliate exchanges, Commission Junction, has even positioned itself as pay-for-performance driven.

When it comes to obtaining CPA deals, the largest advertisers like Microsoft, Amazon, VISA, Barnes & Noble, and Columbia House, have typically had the upper hand because they control the purse strings. Now, advertisers of all sizes are looking for CPA deals, primarily because they allow for controlled ROI (return on investment). And with the weakened economy, it’s more of a buyer’s market than ever before.

While CPA deals are out there, the main concern from publishers is that these deals give the advertiser greater exposure at the expense of the publisher, the kind of exposure the publisher would otherwise be paying for. Perhaps an even more global concern, however, should be the down-the-road scenario of what happens if weak ad revenues force smaller publishers to close shop or sell out. As the online landscape continues to shrink and only monster publishers survive, what will become of ad prices then? For those of you who have ever tried to negotiate with the likes of AOL, you know that behemoths are expensive, unwieldy and inflexible.

Compromises & Solutions

So what are all players to do? Whenever there are buyers and sellers, there is the tension of negotiation — everyone wants what’s best for their respective parties. Let’s all bear in mind, however, that at least while we’re in it, our livelihoods all depend upon this medium surviving. There are certainly some compromises that can be had.

Mixed Deals
Buying online advertising doesn’t have to be just one way, all or nothing. Publishers and advertisers can work to come up with media buys that combine both CPM and CPA offerings.

Full Disclosure
To improve results, it’s up to both parties to provide each other with as much information as possible. Advertisers need to be able to articulate their objectives and expectations; publishers need to be truthful from the start about what they can and cannot do.

Improved Consultative Services
If publishers want to retain CPM sales yet advertisers just want to see results, there needs to be more input from the publisher on the buy from start to finish. Where’s the best placement, what number of impressions should be bought and how should they best be distributed, ideas on what kinds of creative and messages have worked best in the past, how long should the ad be served before considering replacing it if it’s under-performing, etc. This medium is new and unproven. Advertisers need as much help as they can get to make things work, and publishers would benefit themselves by getting involved in more than just selling.

Better Communication
From ad reps who return phone calls and emails to media buyers who keep the ad rep apprised of the advertiser’s satisfaction/dissatisfaction, all parties involved in an ad buy need to keep the lines of communication open and flowing.

Make Goods & Over-Deliveries
If publishers want to maintain a CPM model, they need to also work to correct shortcomings and errors. This can be done by providing “make goods” when ads don’t get delivered as promised, and if campaigns are not performing, consider delivering extra impressions to try to generate the desired results for the advertiser.

Be Receptive To New Ideas
Sometimes it’s not the type of buy, rather the placement and delivery of the buy that doesn’t work. Publishers that are willing to consider fresh ideas for placement and delivery are more likely to garner the advertiser’s dollars.

Pricing Both Parties Can Live With
When the Internet was hot, publishers were charging sometimes outrageous CPM rates which helped turn advertisers off. Now that the market is low, advertisers have the upper hand. There are lessons to be learned here. In all fairness, publishers who are receptive to CPA deals should also be able to earn a premium on that action since they have to do more work to earn it. Higher prices for CPA deals should not be viewed as unreasonable if both parties are getting what they want.

In order to convince heavy advertisers to play in this space, they need to have a certain comfort level. Right now, according to statistics from Morgan Stanley, top advertisers are spending only about 1.5% of their marketing budgets online even though the average person spends about 12% of their media time online. It’s in the best interest of all players involved to work on win-win solutions that attract and retain these advertisers.

To learn more about performance-based ad buying read our marketing tip “Pay-Per-Performance Ad Buying“.

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