comments Written By: Scott Jangro
March 21, 2007

Will Google CPA Eat CJ and Linkshare Alive?

Major news came out of Google yesterday as they take the next step toward launching a CPA (Cost Per Action/Acquisition) advertising model. In short, this means instead of advertisers paying publishers for a click (susceptible to fraud), they’ll pay only when a predefined action takes place, like a product purchase or a user signup.

Dozens and dozens of blogs and news outlets covered this story yesterday, including the New York Times, which offers a pretty good overview. Debates are still raging about whether Google is getting into Affiliate Marketing or not.

What I found interesting was the TechCrunch writeup, where Michael Arrington predicted the death of the affiliate networks, essentially stating that Google with it’s vast network would suck the affiliate networks dry. He summed it up with a comment in response to another comment in that same post:

arrington-google-cpa.jpg

This tells me that either Michael doesn’t really understand affiliate marketing, or he thinks that Google has much, much more up their collective sleeves.

Of course most of us are yet to see what the new offering will look like, but there’s one key factor that keeps Google’s new offering far away from the Affiliate Marketing model: These are Ads.

Affiliate marketing involves traditional advertising methods like banner ads and text link ads but most of the really successful affiliates are not merely ad-pushing publishers. While there are plenty of affiliates who use affilaite marketing to show ads, the majority of top affiliate marketers form close partnersips and integrate with the merchants they promote. They use tools like promotions, coupons, and product data that get tightly integrated into the affiliate’s offering. They communicate with the merchants on IM, email and even the telephone. An example is a niche price comparison shopping engine. A single page on that site may have 20 different products from 15 different merchants, each with a “buy” link going through an affiliate network.

Google simply cannot service this with a double-blind, put-this-javascript-text-link-on-your-site, advertising model.

If they go anywhere close to servicing this affiliate marketing relationship that I’m describing, they shatter their hands-off, self-service, mass-market, advertiser-publisher model. This model works well for them, scales extremely well, and they have no reason to deviate for the sake of eating the affiliate networks or even their lunches.

Will this cut into some of the publishers that currently operate in affiliate networks? Definitely, but one could argue that Adsense already did that damage. There’s a 95-5 rule that’s talked about in Affiliate Marketing. 95% of the revenues are driven by 5% of the affiliates. This 5% of affiliates cannot be serviced by an “advertising” model.

Affiliate Marketing is not Advertising.

Viewing 12 Comments

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    Scott, Thanks for thinking so others do not have to (homage to Ze Frank). You took the words right out of my mouth - very good explanation of the nuances surrounding this issue. I think there will be a lot of discussion by people who have a very general knowledge of affiliate marketing making sweeping statements about the end of affiliate marketing. Bottom line - affiliate marketing is not as simple as online advertising and both advertisers and affiliates will want the control provided by affiliate networks. At best this is a wait and see game - I expect a clearer picture to emerge on this towards the end of 2007. Until then it is just hype, speculation and fear.
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    Michael Arrington is wrong about this one. I wish I have read this article before I wrote mine. I will link to it anyway.
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    It's the data. I stand by that. That is all they want long term and I don't think networks are in immediate danger at all. AM doesn't scale very well, then again the value of adsense (due to mass approach) has been reduced to the point where the return isn't what it was. As long as they meet the numbers- they'll chug along using sheer mass.

    -wayne
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    All the mainstream media pundits predicted Microsoft would crush GOOGLE in search and this was absolutely proven false. The same is true in this case, Goliath will not crush David.

    Google will make tons of money serving the 95% of affiliate/contextual marketers who just want to embed links on their sites. Google will expose more people to text links, but these are people who never would have used the CPA networks anyways.

    CJ et all will still do just fine serving the 5% super affiliates and high volume players in the ad publishing sphere.
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    Well said!
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    I am not 100% convinced, it depends on how smart Google are. As an example I have not seen anyone mention Froogle.
    Imagine if they created contextual Froogle widgets or API that would allow the mass market to offer comparison shopping. Or they could just buy thisnext and plug their CPA into it.
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    >> froogle, comparison shopping widget.

    Even so, it's still advertising. You don't see Chitika, Auction Ads, and the like causing any stir with the affiliate networks. That's because they're for bloggers, content sites who can't monetize on their own by promoting specific products and services. Adsense is already serving this market, and the new offering will tap mostly into that group of publishers that they already own.
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    I for one an excited about the new Google CPA. I think this will be a great tool for leads and list building.

    Whether it will effect the other networks out there, who knows, competition is good for any industry and only time will tell.

    Steve Renner
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    Obviously there will be a ripple affect when Google CPA picks up steam. However, I highly doubt that ripple will drown major affiliate networks like Commission Junction, Linkshare and even ShareaSale. They simply offer too much and have a strong affiliate following. Woe to the little affiliate network though if they’re not providing exclusive offers.

    But...

    All in all though you really have to remember that Google CPA is just measurable ads like Scott states. It’s not a traditional affiliate program where you can use banners, coupons, vouchers, cashback incentives, email templates or any other resource that allows affiliates to integrate a merchant into their site.
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    Finally a comment that reveals why Adsense will have a tough time with PPA. Affiliate marketing is indeed not the advertising business that Big Daddy Google is accustomed to. There are many ways to screw this up and only one to get it right. Only time will tell though how Google will perform.

    Best regards, George
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    Shadowed by Google’s April Fools Day Gmail Paper spoof, was an important annoucement that provides a glimpse of where Google is going next.

    Google has emerged together with Microsoft as a contender to buy DoubleClick Inc., one of the leading third party ad-serving firms, serving over 1 billion ads a day through its DART platform. Doubleclick is currently owned by private equity company Hellman & Friedman LLC. The third party ad-serving market is going through a wave of consolidation, with ATLAS recently purchasing Accipiter and Doubleclick’s purchase of Faulk eSolutions.

    The purchase of Doubleclick by Google would cement the company’s position in ad land, providing them access to thousands of potential advertising technology clients. More importantly it would bonify Google’s planned CPA (cost per action) offering by giving it in the form of DART, a proven and trusted platform to track and manage CPA advertising agreements. The combination of DART’s tracking and Google’s reach could present a serious challenge for Trade Doubler, Commission Junction and buy.at. The challenge Google will continue to face will be click faud. Is the launch of a CPA network an antidote for click fraud? Unlikely; given Ad Sense publishers would be paid on the basis of completed actions as opposed to clicks generated.

    The key to success for Google in this world of CPA is not reach but service. The current affiliate marketing market is a perfect example - 80% of actions are driven by 20% of affiliates (usually known as “super affiliates”) and the loyalty of these super affiliates, as a network owner and advertiser, must be managed closely. Based on Google’s track record of poor service I don’t believe Google can sustain a CPA model without acquiring a specialist network. Lastly and more importantly, advertisers are increasingly concerned with the “quality” of actions or conversions they pay for as opposed to the “quantity” of actions or conversions. Again the quality of Google audience does not come down to the sheer size of its Ad Sense program but service to acquire and retain quality sites to its Ad Sense network.
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    Nope, didn't happen.

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