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Pay per click, soon to die?
ppc,cpc,adwords,overture
krooga

5+ Year Member



 
Msg#: 1294 posted 3:24 pm on Mar 28, 2006 (gmt 0)

As most of you probably know, billing for adverts on major search engines occurs via a Cost Per Click model. Each click on a particular ad drives up the bill for advertisers.

I have been thinking about why this business model is unstable and likely to collapse in the near future; I would be interested in hearing your opinions on this matter.

As research shows, more and more businesses are turning to search engine paid marketing strategies for their promotionnal needs, as a result cost per clicks on average are rising due to the growth of advertisers. In the current state of things I would without a doubt say that most advertisers are obtaining good return of investements with this method of advertising. Fast forward to a year's time, the number of advertisers would have grown significantly along with the cost per click prices...

My feeling about this is that as more advertisers use the cost per click model, it will become tougher to break even and eventually will come a point where advertiser's return on investment will become null.

Add to this the growing problem of click fraud and I think you will find that the PPC/CPC model hasn't got a bright future...

Your opinions and arguments will be much appreciated;

Sam

 

inerte

5+ Year Member



 
Msg#: 1294 posted 4:26 pm on Mar 28, 2006 (gmt 0)

If PPC costs ever become too high, it will be lowered. Or certain advertisers won't be able to bid competitively. But such is the market, not everybody runs Superbowl ads.

Freedom

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 1294 posted 5:04 pm on Mar 28, 2006 (gmt 0)

This is actually a very interesting thread topic and forward looking in that the PPC revenue model might soon become "old fashioned."

- Despite increases in online advertising revenue, revolutions in this industry can happen very quickly and PPC has been around a long time and might be ripe for a change.

What that change will be, I don't know, but it's just a gut feeling I have that this revenue model is going to become the PageRank and Banner Ads of yesterday.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 12:31 am on Mar 29, 2006 (gmt 0)

I have thought CPC is a bad business model for over ten years. I was not surprised at all to see the first click fraud problems emerge in the mid-1990s. Undesirable aspects of CPC include a lack of accountability when either click fraud or some other disputed billing issue emerges (how does one "prove" that one received traffic); an inability to distinguish "legit" traffic from that which is generated by compromised computers (or fraudulent clickers), especially when it does not convert; paranoia on the part of publishers who can't discuss their publishing businesses with friends or family for fear that they'll click on the ad-bearing sites and get the publishers dropped from CPC programs; ever-increasing costs borne by publishers, advertisers, and SEs to detect, correct, and/or refund accounts that may have received "invalid" clicks.

I'm more in favor of CPM (where the impressions are determined statistically, not merely counted as the number of requests to deliver an ad from an ad server, or the number of times an ad shows up on a browser page).

jpchrysler

5+ Year Member



 
Msg#: 1294 posted 3:32 pm on Mar 29, 2006 (gmt 0)

I *really don't think PPC is going anywhere. It's market driven, so people will pay what they can afford. A pure conversion model cannot exist because much of the future growth of advertisers will come from late adopters - small businesses which cannot track conversions per se.

PPC is a shared risk, hybrid model already. I think in some niches, CPM and CPA will still be used forever, but CPC works pretty well.

Regarding click fraud, while it is a threat, it's a very manageable threat for the PPC industry. The impression or conversion fraud vulnerabilities in CPM or CPA models respectively may prove to be as great as those in the CPC space.

john_k

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 1294 posted 4:00 pm on Mar 29, 2006 (gmt 0)

I think you need to look at CPC ads as an evolving model. The goal of a CPC campaign should be to deliver well-qualified people to your website. ("qualified" being defined by your specific website, situation, and campaign)

Google's AdSense and other systems modeled on it help to pre-qualify users by displaying ads on websites with content relevant to the target market.

AdSense and other CPC networks currently do this in a fairly crude way, however. And there is a LOT of room for improving the targeting mechanism. They currently cannot distinguish the sophistication of the visitor in the context of the content. Nor can they determine the visitor's location in the sales cycle. They are also unable to work with hints on the visitor's ability and willingness to pay.

I would expect broadly applied CPC networks to continue to chip away at those hurdles. But more importantly, I would expect to see independent websites becoming more and more tailored to those tasks and then selling their own CPC ad space.

jdancing

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 1294 posted 4:15 pm on Mar 29, 2006 (gmt 0)

Search engines will only make more money on PPC so it is not going anywhere. However, many small webmasters will be priced out of a google front page PPC ad.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 12:37 am on Mar 30, 2006 (gmt 0)

Regarding click fraud, while it is a threat, it's a very manageable threat for the PPC industry. The impression or conversion fraud vulnerabilities in CPM or CPA models respectively may prove to be as great as those in the CPC space.

When fixed fees are paid for ads, it is much more difficult to commit fraud. It doesn't matter how often an ad is clicked on, or how many times it's delivered from the ad server, or whether the people who click on the ad are affiliated with the ad publisher.

steve40

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 1294 posted 12:54 am on Mar 30, 2006 (gmt 0)

I dont think PPC will go away but will evolve including better fraud detection and also further evolve with the increase of Internet Telephony the higher end will be for Pay Per Call and the cost I suspect will be in the order of 4 to 5 times the cost of current offerings , with this technology fully in place the PPC costs may decrease

The internet continues to evolve and advertising will also evolve we could well see current affiliate programmes from the more established older players like CJ changing to a similar Pay Per Call Model and Googles current business model may need to change quickly or they could well be left behind as webmasters will always look for the best way of moniterising traffic and at the same time offering their visitors the best efforts

this is only my own view and I have no doubt others will see the landscape changing in other ways

steve

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 2:58 am on Mar 30, 2006 (gmt 0)

I dont think PPC will go away but will evolve including better fraud detection and also further evolve with the increase of Internet Telephony the higher end will be for Pay Per Call and the cost I suspect will be in the order of 4 to 5 times the cost of current offerings , with this technology fully in place the PPC costs may decrease

The "better" that fraud detection gets, the more it will eat into the SE and/or ad network's profits and valuation. For example, it isn't possible to distinguish between two nonconverting click streams, one created by someone who clicks but doesn't buy, and another initiated on a compromised computer by a fraudster. Another issue to consider is that there is an increasing amount of country-specific blocking, as advertisers and publishers realize that some countries are rife with click fraud. As this becomes better known in the investment community, this will cause the valuations of the SEs and ad networks to drop, since a good deal of growth has already been priced into their stocks based on anticipated revenues from those countries. To boost their valuations, the SEs and ad networks will be forced to switch to business models that are much less subject to fraud than CPC.

jpchrysler

5+ Year Member



 
Msg#: 1294 posted 11:11 pm on Mar 30, 2006 (gmt 0)

When fixed fees are paid for ads, it is much more difficult to commit fraud. It doesn't matter how often an ad is clicked on, or how many times it's delivered from the ad server, or whether the people who click on the ad are affiliated with the ad publisher.

But fixed fees are almost invariably related to the amount of traffic that is delivered for said fee.

If a fixed fee position on the front page of a site can deliver 2500 clicks instead of 1500, the owner of the site can charge a higher fixed fee.

In this sense, click fraud on a fixed price model is more insidious, becuase it's less intuitive. But it's happening fixed price model networks right now.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 12:19 am on Mar 31, 2006 (gmt 0)

But fixed fees are almost invariably related to the amount of traffic that is delivered for said fee.

Not necessarily.

If a fixed fee position on the front page of a site can deliver 2500 clicks instead of 1500, the owner of the site can charge a higher fixed fee.

The owner of the site may be able to charge a higher fixed fee, if the quality of the traffic is such that it delivers whatever the advertisers expect it to.

In this sense, click fraud on a fixed price model is more insidious, becuase it's less intuitive. But it's happening fixed price model networks right now.

If an advertiser is buying strictly on traffic numbers, no pricing model can protect them. This is like saying that advertisers who buy on the most listened to radio station in the city are being defrauded. Advertisers who are ignorant to the buying tendencies of the audience for media will get screwed regardless. The idea behind fixed fees is that once the advertiser has made an informed choice, they pay only for the choice they made; they do not pay extra for things that can't properly be accounted for.

rjzak

5+ Year Member



 
Msg#: 1294 posted 1:17 pm on Mar 31, 2006 (gmt 0)

The idea behind fixed fees is that once the advertiser has made an informed choice, they pay only for the choice they made; they do not pay extra for things that can't properly be accounted for.

IMO, it is at least as difficult, if not more so, to account for impressions than it is to account for click-throughs.

jpchrysler

5+ Year Member



 
Msg#: 1294 posted 2:32 pm on Mar 31, 2006 (gmt 0)

If an advertiser is buying strictly on traffic numbers, no pricing model can protect them. This is like saying that advertisers who buy on the most listened to radio station in the city are being defrauded. Advertisers who are ignorant to the buying tendencies of the audience for media will get screwed regardless. The idea behind fixed fees is that once the advertiser has made an informed choice, they pay only for the choice they made; they do not pay extra for things that can't properly be accounted for.

I think you're asking a lot of your average internet ad buyer. There are plenty of advertisers out there who either don't have innately trackable events (like a local plumber, for example), or lack the savvy to accurately and distinctly monitor their traffic by source. If they're paying $50 a week for traffic that's only worth $30-40, they probably won't know, but they're nonetheless getting defrauded. I would wager that most internet advertisers could be defrauded in just this way.

In the credit card world, ignorant fraudsters - the ones who get caught - make elaborate charges which are easily noticed. Smart ones defraud individuals $2.78 or $4.18 at a time in order to fly within the noise.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 10:48 pm on Mar 31, 2006 (gmt 0)

IMO, it is at least as difficult, if not more so, to account for impressions than it is to account for click-throughs.

I'm proposing that impressions be determined statistically, through projections of samples of web site usage.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 11:02 pm on Mar 31, 2006 (gmt 0)

I think you're asking a lot of your average internet ad buyer. There are plenty of advertisers out there who either don't have innately trackable events (like a local plumber, for example), or lack the savvy to accurately and distinctly monitor their traffic by source.

Local plumbers are able to do ok advertising on neighborhood billboards, or papers, or cable systems, despite a lack of "trackable events." Why is that? How are they buying those media? (Hint: it isn't anything like CPC.)

If they're paying $50 a week for traffic that's only worth $30-40, they probably won't know, but they're nonetheless getting defrauded. I would wager that most internet advertisers could be defrauded in just this way.

How are they being defrauded if they knowningly spend money on something that has been (statistically) determined to be worth less than they're paying? Whose fault is that? Local plumbers who advertise on local media seem to know the value of what they're paying for.

In the credit card world, ignorant fraudsters - the ones who get caught - make elaborate charges which are easily noticed. Smart ones defraud individuals $2.78 or $4.18 at a time in order to fly within the noise.

This happens in the CPC world as well. As I've said before, you can't distinguish between a nonconverting clickstream that's the result of a disinterested buyer from one initiated on a compromised computer by a fraudster.

Iguana

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 1294 posted 11:08 pm on Mar 31, 2006 (gmt 0)

CPC died a long time ago. Too much click fraud and even websites that were legit found they weren't getting paid as soon as their payment threshold was reached.

...and then Google started Adword CPC and Adsense. Why would they do that?

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 11:35 pm on Mar 31, 2006 (gmt 0)

...and then Google started Adword CPC and Adsense. Why would they do that?

Hard to say. It has amazed me that as bright and talented as the engineers at Google are, they did not anticipate the scope of the click fraud problem and at the very least, put limiting measures in place before AdWords and AdSense were launched.

Iguana

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 1294 posted 11:46 pm on Mar 31, 2006 (gmt 0)

Or they thought they could cope with the click fraud. They are big enough to know all about the patterns of impressions/clicks on any site or type of site.

Judging by the number of people who claim Google have banned them unfairly in the Adsense forums (and the click fraud that 90% of them have obviously been doing) then they are making a pretty good stab at it.

I sometimes wonder whether Google isn't using Adsense to get a list of the honest webmasters and a blacklist of those who can't be trusted.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 12:33 am on Apr 1, 2006 (gmt 0)

Or they thought they could cope with the click fraud. They are big enough to know all about the patterns of impressions/clicks on any site or type of site.

IMO, they underestimated the amount of preparedness they needed to cope with click fraud. This is surprising to me, since these measures are well known and understood within the security community at large.

I sometimes wonder whether Google isn't using Adsense to get a list of the honest webmasters and a blacklist of those who can't be trusted.

If this is true, then it is a rather crude way of doing so.

MikaelTC

5+ Year Member



 
Msg#: 1294 posted 12:36 am on Apr 1, 2006 (gmt 0)

Click fraud is an interesting problem, but it is already calculated into the cost of advertising. I do not buy ads on Yahoo!'s contextual listing mechanism because they do not, for whatever reason, allow advertisers to filter ads by site. As an advertiser I consider that I would by paying for converting clicks, for non-converting clicks from interested customers and for fraudulent clicks from webmasters' tricks to get more 'free money.' I don't specifically care what percentage of the clicks are fraudulent, I only care that the benefit (sales) of the ad buy justify the cost. A profitable campaign with high click fraud is still profitable, and an unprofitable campaign with no fraud at all is still unprofitable.

The way I see it, the problem is not with the payment model, but with the distribution network. I'm comfortable paying CPM, CPC, CPA, Flat Rate Sponsorship or whatever the publisher can dream up. It's all the same to me; the market will eventually determine the value of a placement and that's that. The real problem comes when I don't know where my ads are displaying because then I can't pre-value the placement or prevent bad ones.

I don't think that PPC is doomed because it's quick, calculable and easy. I do think that the present incarnation of contextual advertising is doomed because it's bulky, inaccurate and opaque.

willybfriendly

WebmasterWorld Senior Member 10+ Year Member



 
Msg#: 1294 posted 12:57 am on Apr 1, 2006 (gmt 0)

There was a story about this on NPR a few days ago. (http://www.npr.org/templates/story/story.php?storyId=5303608) In it, reference was made to the snap dot com ad network that is charging a percentage of conversions. It was not very specific as to the details.

WBF

Tastatura

5+ Year Member



 
Msg#: 1294 posted 1:17 am on Apr 1, 2006 (gmt 0)

I am new to PPC, and are having a tuff time understanding reasoning why Google (and others) do not allow advertisers to see where their ads are being displayed?

(if this question is not appropriate for this forum/thread please relocate/remove it)

MikaelTC

5+ Year Member



 
Msg#: 1294 posted 1:33 am on Apr 1, 2006 (gmt 0)

I am new to PPC, and are having a tuff time understanding reasoning why Google (and others) do not allow advertisers to see where their ads are being displayed?

Mainly because the ad placements are determined on the fly and are calculated by a very complicated formula. They've got this magic black box sitting there running the program and they couldn't tell you what it's going to do if they wanted to. Now they can (and should) tell you where your ads were placed in the past but mostly they don't because the list would be ten miles long and would make your eyes bleed.

These networks sound great in theory but they're just not quite ready for prime time. Network distribution of any kind is good for filler, but I wouldn't rely on it as a mainstay either as an advertiser or a publisher. I don't doubt that some of you folks will disagree with me, but that's a different topic.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 3:58 am on Apr 1, 2006 (gmt 0)

As an advertiser I consider that I would by paying for converting clicks, for non-converting clicks from interested customers and for fraudulent clicks from webmasters' tricks to get more 'free money.' I don't specifically care what percentage of the clicks are fraudulent, I only care that the benefit (sales) of the ad buy justify the cost.

You are an informed ad buyer, and you have appropriately gauged the risks. IMO, most people who buy ads are not informed. As a software engineer, I am concerned with the ability to build scalable, reliable systems, for which something can be reasonably said about their integrity -- their ability to resist being compromised or manipulated. IMO, the inherent anonymous nature of web usage, combined with the current limitations of Internet security and some aspects of its architecture, make CPC advertising a poor model. At the very least, I would like for any ad buyer to plainly understand these risks and limitations. If they wish to continue to buy, and make money off of the medium anyway, more power to them.

rjzak

5+ Year Member



 
Msg#: 1294 posted 2:13 pm on Apr 1, 2006 (gmt 0)

Typo error, see post below...

[edited by: rjzak at 2:18 pm (utc) on April 1, 2006]

rjzak

5+ Year Member



 
Msg#: 1294 posted 2:15 pm on Apr 1, 2006 (gmt 0)

You are an informed ad buyer, and you have appropriately gauged the risks.

But even if you eliminate click fraud, you still need to be an informed buyer. Competition will drive up bid prices and you need to know how much to spend. Your revenue yield will need to be known to set a proper bid price.

The same is true for the print advertising industry and even some TV advertising. Their prices are CPM; though, the informed ad buyers put tracking phone numbers and discount codes in their advertisements. They know their yield.

Whatever the pricing model (and associated fraud/leakage that comes with it), it comes down to what you spend versus what you get back from it. Informed ad buyers are more likely to succeed (the more informed the better). Uninformed ad buyers are less likely.

gregbo

WebmasterWorld Senior Member 5+ Year Member



 
Msg#: 1294 posted 3:06 am on Apr 2, 2006 (gmt 0)

But even if you eliminate click fraud, you still need to be an informed buyer. Competition will drive up bid prices and you need to know how much to spend. Your revenue yield will need to be known to set a proper bid price.

Sure. It should be pointed out that it is much easier to commit click fraud than to defraud charging of other types of media. It doesn't even require any particular expertise; it can just be carried out by a group of individuals who agree to click on some sites here and there. They don't even need to make money off of the fraud; they can just do it to pump up the spend of an advertiser they want to harass.

Anyway, I'm just pointing out some things that I've learned in the hopes that others will find them useful. If someone can make money off of CPC despite click fraud, more power to them. I still think it is a bad idea in general. I don't think I could in all conscience recommend it as a hallmark of commerce.

jpchrysler

5+ Year Member



 
Msg#: 1294 posted 5:04 pm on Apr 2, 2006 (gmt 0)

Sure. It should be pointed out that it is much easier to commit click fraud than to defraud charging of other types of media. It doesn't even require any particular expertise; it can just be carried out by a group of individuals who agree to click on some sites here and there. They don't even need to make money off of the fraud; they can just do it to pump up the spend of an advertiser they want to harass.

For any given search engine, click fraud is a function of a) the financial incentive that is present for the fraud and b) the ease with which said fraud is perpetrated.

You can reduce click fraud by removing incentive to commit it or making it more difficult.

There are two basic ways to reduce incentive - reducing third party distribution or reducing competition - but neither is good for the search engine (nor, arguably, the consumer). I can't see either of these happening anytime soon, particularly since G's stock value is in a carnal embrace with earnings and growth.

That leaves you to make it more difficult. I assert that click fraud can be made sufficiently difficult that it no longer makes financial sense. This is relevant because I believe CPC to be the most efficient overall model for delivering customers to advertisers.

A CPA would probably be an ideal model in terms of value for money for *most advertisers, but long-term, a majority of advertisers don't have discrete 'actions', so CPM or CPC will still be needed for everyone else.

CPM is very problematic for any number of reasons. While I agree it is in principle an elegant model (and one which I have argued for years offers savvy advertisers the best potential ROI since they're bearing all the risk), in practice it's got more holes in it than a horse-trader's mule.

In terms of fraud, CPM does nothing to diminish the incentive for fraud. Impression fraud seems to be a more difficult problem to stop since the search engine has less transactional data to scrub for say, an XML call for a given keyword than they do for a click on a .js based ad. Further more, scrubbing on the click is computationally less expensive, since clicks happen 10-20 times less frequently than do impressions.

Increase the number of transactions and you increase the noise in which fraudsters can hide.

Click fraud, or impression fraud, or for simplicity, let's call it "Search Fraud," robs the industry of value. Dollars, Euros and Pounds are being taken from the hands of business owners and placed in those of unscrupulous thieves. Even if the current conditions of the market allow some advertisers to make money despite the existence of fraud, the industry as a whole will be better off when fraud is reduced.

Try walking around for a day with an extra 10% of your body weight and tell me this is not the case.

Tastatura

5+ Year Member



 
Msg#: 1294 posted 5:44 pm on Apr 2, 2006 (gmt 0)

Based on this
[video.google.com ]
I don't think PPC will die soon.
This video, from Google Tech talk, also offers a bit of an inside of how Googles PPC model works and why (through comparison to other model). As newb to this field, I found the talk interesting...

This 46 message thread spans 2 pages: 46 ( [1] 2 > >
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