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.


4 Responses to “Is CPA/PPA the Right Local Ad Model?”

  1. Conversation with ListandFound « Screenwerk Says:

    […] of the things we spoke about that I can share was my speculation about some portion of local moving to a CPA/commission-based model. That would bump up the prices local businesses would be willing to pay for online […]

  2. Indeed Adopts to PPA/CPA Model « Screenwerk Says:

    […] That said, I still think that CPA may bring valuable innovation to certain areas. Accordingly, here’s my recent related post on CPA and local. […]

  3. Caliber: Closing the Loop between Online and Offline Purchases « Screenwerk Says:

    […] be scary to some publishers but it’s consistent with other moves in the local market (e.g., pay per booking). Google is testing CPA and Snap, Jellyfish and others have been using CPA models for some […]

  4. Booktup Says:

    hmm PPA seems like it would at least be telling the company how much of the program is helping their business. I wonder if letting them do that for a little while and then offering them the option of a subscription would be beneficial?

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