Is CPA/PPA the Right Local Ad Model?

IAC’s Peter Horan said at the Kelsey Group show that local search had failed so far to deliver on its promise. He was referring to several things, one of which I interpreted to be revenues and online advertising adoption by SMBs. There are myriad reasons for that, which have been discussed in the past.

Several recent developments, however, including Google’s recent trial introduction of “pay-per-action” (PPA) raise the possibility that the winning local ad model is some version of that, also labeled “cost per action” (CPA).

In a white paper on pay-per-phone-call (PPCall) two years ago I argued, and Kelsey Group data validated, that local businesses would rather pay for calls vs. clicks because clicks are “opaque” to them. Earlier Jupiter survey work for Ingenio also established this demand. Local businesses understand calls and how to convert them. They don’t know how to optimize websites or do A/B testing of contact pages, etc.

PPCall is much more like a “lead gen” or CPA model than it is like PPC. As a consequence, you can charge more for it. Enter GenBook and the European site Libersy. (Michael Arrington “outed” GenBook here in this post.) GenBook’s model is PPB (“pay-per-booking”), which is also a CPA model. I’m guessing only a little here when I say PPB has the business paying when a booking is placed.

There are differences among all these models but they’re essentially seeking to deliver better prospects or actual sales, with correspondingly higher ad/commission rates. What you can get for a click and what you can get for an actual customer are quite different.

(Citysearch EVP Scott Morrow spoke to me awhile ago about moving to a model that charges different rates based on “lead quality.” There’s a sales challenge there perhaps but it’s interesting to consider the continuum: clicks on the left and commission-based CPA on the right, with email, lead gen, chat and calls in between.)

Generally, there’s less of a sales challenge with CPA (unless its definition is variable) because the business understands they’ll pay only upon customer acquisition or its near equivalent. It also addresses click fraud, although I don’t think most SMBs think about click fraud that much. The issue is really “what is a click?”

Widespread adoption of a CPA model could potentially boost local online revenues and make the disparity between online and offline ad rates, if the publisher is also a traditional company, less than they are today with print vs. clicks for example. It also eases the pressure on publishers to have so much traffic volume to make money.