Google Launches Cost-Per-Action Ad Beta in Threat to ValueClick

Google announced Tuesday the "beta" rollout of an ad product that allows advertisers to pay for a definable action such as a purchase, download, or subscription -- unlike the current model that pays for page-views or click-throughs without regard for end results. Under the "cost-per-action" [CPA] model, advertisers decide (bid on) what they are willing to pay for a given result. Armed with this information, web publishers can then decide whether to run a given ad on their site. Besides reducing the risk of being charged for ineffective ads, the system also eliminates the problem of click fraud - when a person or automated program imitates a legitimate user clicking on an ad, for the purpose of generating a charge per click without having actual interest in the target of the ad. Conversely, the model may prove riskier for content providers, since it gives no guarantee that a provider will make money from any given ad. For now, Google's test is currently limited to about 75 websites and 75 advertisers -- it is not putting cost-per-action ads on search-result pages. Also known as affiliate marketing, CPA ads from Google will compete with the industry's largest affiliate marketer, Commission Junction, owned by ValueClick. For now, the CPA model is still at an early stage; ValueClick's affiliate marketing unit had $112 million in sales for 2006, while Google topped $10 billion in revenues.

Sources: Google's Inside AdWords, New York Times
Commentary: Google's Threat to Ad and Affiliate Networks • Google Launches ValueClick Killer • Google cost-per-action. Is this how mass media ends? [Faster Future] • Google Checkout Plus CPA Ads: ValueClick Killer
Stocks/ETFs to watch: Google Inc. (GOOG), ValueClick Inc. (VCLK). Competitors: aQuantive Inc. (AQNT), Yahoo! Inc. (YHOO), 24/7 Real Media Inc. (TFSM), Think Partnership Inc. (THK), Marchex Inc. (MCHX). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
Conference call transcript: Google Q4 2006 Earnings Call Transcript • ValueClick Q4 2006 Earnings Call Transcript
Related: Google Advertising, Wikipedia on click fraud

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