Will CPA become the preferred pricing model for paid search?

By Aaron Goldman, VP Marketing & Strategic Partnerships

In a couple weeks, I’ll be speaking on a panel at the Digital Media Measurement and Pricing Summit in NYC. The topic of my session is “Search Engine Pricing.” In a nutshell, we’re going to discuss the various pricing models for paid search and whether or not a move to CPA is afoot.

I’ve been batting this topic around for the past couple weeks as I prepare my POV to share at the conference. I hadn’t really landed on anything until a recent Search Insider article by Mark Simon got me thinking about the strange bedfellows that recent acquisitions in the search space have created.

In his column, Mark speculates that the purchases of DoubleClick by Google, Atlas by Microsoft, and Right Media by Yahoo will lead to “insider data trading” -- with the engines able to see what marketers are paying for search listings on other networks, they can use that data to jack up their minimum keyword bids.

Personally, I don’t think the search engines would abuse their power in this regard as they have too much to lose if they get caught -- not to mention they’re doing just fine making money by letting the open-market dictate pricing.

That said, Cost Per Acquisition (CPA) pricing would eliminate any and all concerns over misuse of internal data -- if marketers only paid for actual conversions, it wouldn’t matter what each engine set their rates at. In this model, marketers would define what they are willing to pay for a specific conversion activity and (presumably) bid to the point of diminishing returns.

Of course, the natural follow-up question is, “What if my search marketing goal is not driving conversions?” Well, I suppose a conversion could be defined in many different ways -- sale, download, video view, registration, bookmark, etc. We could even call a click a “conversion” and assign a price we are willing to pay for that action (which is essentially cost-per-click or CPC -- the current model for buying search ads).

Some of the engines (including Google) are already experimenting with CPA pricing. And new engines (eg, Snap.com) have sprung up catering exclusively to CPA.

The bottom line is that, with more and more consolidation (and inherent conflicts of interest) emerging in the online media space, it’s more important than ever that search companies commit to being transparent in their practices. When it comes to pricing, there is no more transparent model than CPA. Now that doesn’t mean the engines will embrace it. In fact, historically the search engines have been anything but transparent -- Google’s quality score and Yahoo’s decision to stop sharing absolute keyword volume data are 2 prime examples.

Well, it’s my first blog post here at FindResolution.com and I’ve already gone over my suggested word count so I’ll call it quits for now and pick this up in my next Search Insider column (set to publish Wed. 1/23.) I’ll dive deeper into the implications of CPA for marketers and the engines and see if the value-equation nets out in a win-win. In the meantime, I would love to hear any thoughts from the community about this topic.

Posted by: Aaron Goldman, VP Marketing & Strategic Partnerships


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