A few months ago I did some consulting work for a startup in the Seattle area called Caliber Data. At the time they literally swore me to secrecy (with NDAs) about what they were doing. They brought me in to kick the tires of their model and give them some outside perspective on aspects of the local search market.
In a post in late March I alluded to them obliquely as a company that had developed a provocative system for closing the loop between online advertising and offline transactions. (In fact the post is so obscure that I can’t find it now!)
Regardless, these guys are now out in the world talking to potential partners and I’ve been told that people won’t show up at my house if I write about them now. :)
Mike Orren of Pegasus News guessed what it was when I did that original post. He inferred that there was a loyalty card at the center of the system. At the time I could neither confirm nor deny the guess but I told Mike he was a very smart guy.
Caliber’s system ties online advertising to the point-of-sale with a consumer loyalty card (but can also capture cash transactions). The merchant pays a marketing/success fee upon an actual consumer transaction. This is true CPA for the merchant – a sale rather than a click, even a call, which is a proxy for a potential sale.
The risk is transferred – on the continuum from CPM to CPA – from the merchant to the publisher or distributor. This is going to 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 time. E-commerce affiliate models have existed since the beginning of the Internet.
I previously speculated about some benefits of CPA models for locally oriented publishers:
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 it’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.
Back to Caliber.
When I first heard about what they were doing, the thing that really captured my imagination, beyond the CPA dimension, was the idea that you really could track online ads to the point of sale. Coupons, which have been around forever, also do this. But for reasons that are not entirely clear, the online coupon market is still immature.
There is something inevitable or inexorable about what Caliber is trying to do for small businesses. The challenge is bringing all the moving parts elegantly together – overcoming the “chicken and egg problem” that plagues many such new ideas. You need the distribution online to interest the merchants and you need merchant participation to get consumers interested, etc. This was a problem with local search itself in the beginning.
Caliber has told me it is currently in discussions with a number of companies – household names and lesser known players — to address these issues, including one major Credit Card issuer. Caliber’s folks say they’ve got the major pieces of the system (and related IP) in place.
I’ve argued relentlessly that the future of online shopping is offline: meaning that the dominant “going forward” model is the Internet driving in-store transactions. That’s always been true for service business and traditional yellow pages advertisers. (Given that fulfillment has to happen locally.) But it’s also true for retail. See, for example, this piece in the NY Times about e-commerce growth slowing. That doesn’t mean that the Internet’s influence is waning – exactly the opposite – it means online purchasing is not going to take over as once thought.
As the Internet’s influence grows but e-commerce slows, the central challenge for everyone in online advertising is how to track that online influence on offline buying. Aside from coupons and calls (to a lesser degree) there’s a “cliff,” after which the consumer becomes invisible and nobody really knows what happens in the local market where the transaction inevitably takes place. While there are convoluted ways to draw inferences and after-the-fact consumer surveys, there’s no real-time tracking beyond what I’ve mentioned.
Caliber’s system makes that entirely visible for both the publisher and the small business advertiser (maybe nationals too). It offers the potential to track the entire process from the search engine or directory or other online consumer destination site right to the local cash register itself.