Google introduces PPA

The big news of the week was that Google released a pay-per-action (PPA) advertising product. This has been hinted to for a while by Google. In fact, during their Q2 ‘06 conference call, I noted several references hinting to a future PPA product. Long-term, Google is definately going to increase advertiser’s confidence in Google’s ad networks with PPA. Most importantly, advertisers concerned about click fraud should be very happy about this. I also liked how Google will be ranking ads by profitability per click. It’s a simple and very clever strategy. The big problem with PPA is that you are relying on the advertiser to effectively convert clicks into actions. If Google deliver clicks to the advertiser but the advertiser does a poor job of converting those clicks, then Google would lose. However, by giving advertisers who deliver a higher rate of profitablity to Google, Google, in effect, forces advertisers to focus on conversion.

This focus on ad profitability will also encourage Google AdSense publishers to get on board with PPA ads. With traditional PPC ads, an AdSense publisher depends on Google to deliver relevant ads that will result in good click-thru ratio (CTR). However, with PPA ads, in order for the publisher to get paid, the publisher also depends on the advertiser to convert the click into action. That might be tough to swallow. Ranking ads by profitability should help AdSense publishers trust PPA ads more.

Reduction in the number of ads on search pages
Scoble posted an interesting tidbit about how he had been noticing that search result pages on Google have been showing fewer ads than before. He got confirmation from an unnamed Google employee that Google has in fact reduced the number of ads displayed.

Google has done a lot of research with users and found that fewer ads mean less revenue SHORT TERM. But long term the advertising revenue actually goes up. Why? They found their users started trusting the advertising more and were more likely to click on ads.

Interesting huh? Scoble points out that this change will help users trust ads more. Ads will be seen by users as aiding in their search, rather than introducing noise. As Scoble also points out, it is conceivable that Google’s top-line will take a small hit as a result. However, if you think about it, all they’ve done is set the relevancy bar higher. Only the more relevant ads are being shown. Less relevant ads are simply being removed from the page. Well, by definition, less relevant ads have low CTR, deliver few clicks, and generate small total revenue. I doubt we’ll see an impact at all.

Google (quietly) introduces text link ads

And now for the bad. Along with the announcement of the PPA ad program, Google also slipped in an introduction to a text link ad unit. Text link ads suck on many levels. First of all, they are confusing to the user. Second of all, they encourage publishers to include certain keywords and phrases that would result in lucrative ads. I’m sure Google will take steps to curb this. Plus, if you think about it, if a publisher sticks in random irrelevant words in their copy, users are unlikely to be clicking and the distraction will discourage users from returning to that site. But the real issue is that up until now, Google’s ads have always been clearly separated from page content. With text link ads, this is no longer the case. Ads can now be intertwined with the page content. A couple forum administrators that have implemented text link ads from other ad networks have since removed them due to poor conversion. It’ll be interesting to see how this plays out for Google…