Actions speak louder than clicks

Google is beta testing a new advertising model: ‘pay per action’. Until now, Google’s all-conquering Adwords system used the age-old ‘pay per click’ scheme. Under that, websites that host adverts are paid each time an advert is clicked on. It means that advertisers pay for every visitor referred through an advert. Critics argue that the system is prone to fraud. They say there is nothing to stop webmasters from clicking on the ads they host, although web analytics can now strip out nearly all dodgy clicks.

Under the new model, advertisers pay when a visitor comes to their site and performs a specific desirable action. That could be anything: subscribing to a newsletter, writing a review or buying a product, for example. The system is said to virtually eliminate fraud by advertising hosts, but brings problems of its own, including that advertisers must be trusted to accurately disclose actions completed.

The model’s based on a flawed assumption: that conversions are a measure of visitor quality. They’re not. They’re a measure of an effective chain of events that began when the visitor saw the ad, and concluded when he or she responded to its creative, visited the advertiser’s website, found and liked the offer, and completed the transaction form. The advertising host only controls a tiny part at the start of that process, but its reward depends on the advertiser’s ability to close the deal at the end.

Advertisers no longer pay for visitors, so they have a weaker incentive to improve conversion rates. If they believe the assumption that underlies the model, most visitors that don’t convert will be dismissed as poor quality leads. They were never going to convert, anyway.

Smarter advertisers will recognise the opportunity here: to continuously measure and improve conversion rates; to eliminate barriers to completing an action; to refine the site’s usability so that it is only the bad leads who do not complete an action.

Others might find it harder to get exposure for their advertising. Under the old system, advertisers assumed the risk that some visitors would be poor quality or fraudulent. Under the new system, advertising hosts must assume the entire financial risk for the advertiser’s website being unusable. The new model will position usability at the heart of the advertising chain, and is likely to ultimately result in advertising hosts choosing to promote only those sites that have streamlined processes, and higher conversion rates.