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03.27.07
Pitfalls of PPA Advertising
 By
Mike Moran
I love it when I get a comment that is better than the original post. Last week, I chimed in with some thoughts on Google's experiment with pay-per-action (PPA) advertising, and I got a hugely detailed comment this weekend on that post, so go re-read that entry to see it. (I'll wait.) When you come back, I'd like to talk about it more.
In my original post, I mentioned that I expected return fraud to be far less of a problem than click fraud has been, but ClickHawk from TrafficSentry believes return fraud will be zero. He (I don't actually know if it is a "he" or a "she") may well know more about that than me. He writes, "'Return Fraud' is a non-issue. Not only does the time/return ratio not make sense for would-be perpetrators, but all existing PPA programs already have built-in measures to debit affiliate accounts upon returns. In fact, this very feature opens up a completely new type of fraud; Advertiser Fraud (merchant fraud against publishers) can occur when unscrupulous advertisers falsify return records in order to receive advertising refunds."
My speculation centers mainly around what kind of relationship Google wants with its advertisers. Return fraud is near zero for affiliate marketers because the product is being returned to the merchant—the one who pays the affiliate. With Google's program, the return would be made to the affiliate/advertiser, so I am not sure how Google could verify that it happened.
As ClickHawk points out, if Google merely takes the advertiser's word for the returns, then it is exposed to a different danger, a fraud perpetrated on Google by the advertiser claiming fictitious returns. To me, that is the most interesting part of how Google structures its program, and I have not seen anything written on this yet. Perhaps my commenter or others know of how other PPA programs work, but I have not found any public information.
ClickHawk goes on to make an even more interesting point about whether the supply of PPA ad space will be available: "PPA is a boon for the advertiser. Not only does it wipe out the possibility of fraud, but it also completely removes his risk, as he is only paying for sales. Now, the publisher is taking all of the risk, and has no idea what, if any, revenue he will receive for the advertising. If the only risk was proving that his audience was a good enough match to produce good response to the ad, the publisher would be more likely to accept the terms (this is, in effect, CPC). However, the publisher is also taking the gamble that the advertiser has both a marketable product AND an effective marketing plan, all the way through the conversion process to the close of the sale. All of this is outside of the publisher's control, so that's quite a big gamble. If their is little market for the advertiser's product, or if the advertisers price is not competitive, or the advertiser's web site is unprofessional in appearance, or any number of other reasons that lead to loss of the sale, the publisher gets nothing."
Continue reading this article.
About the Author:
Mike Moran is an IBM Distinguished Engineer, expert on Internet marketing, and the author of Search Engine Marketing, Inc., the best-selling book on search marketing. Mike also writes the popular Biznology newsletter and blog.
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