Google unveils 'pay-per-action' plan

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KAI RYSSDAL: The common perception is that Google's a search engine company. But it would really more accurate to say it's an ad agency that just happens to do searches on the side. As just one example, Google has 500 employees in New York City whose job it is to sell those ads. So it would be a tricky thing, right, for the company to play around too much with its main source of revenue?

But Google announced today it's doing just that. And promising the new plan will work better for companies that buy ads on the site. Janet Babin reports now from the Marketplace Innovations Desk at North Carolina Public Radio


JANET BABIN: Advertisers usually pay per click for ads on Google — that is, they only pay if someone clicks on their ad.

Google's new option, pay-per-action, goes one step further. Marketers only pay for an ad if a user actually becomes a customer — for example, they subscribe to a magazine or fill out a mortgage application.

Seth Godin runs the website Squidoo.com.

SETH GODIN: From a marketer's point of view, that's a dream, because if it doesn't work you pay zero. You're taking zero risk.

Google isn't the first company to offer advertisers pay-per-action. The strategy became popular among websites that had lots of unsold ad space. So they made customers an offer they couldn't refuse: fork over the cash only if an ad works.

Turn Inc has offered pay-per-action ads since last year. Turn CEO Jim Barnett says the strategy all but eliminates hackers that fake click-on ads because it would cost them something.

JIM BARNETT: You know, you've got to actually pay for the transaction, right?

And not many hackers have pockets deep enough to do that.

But pay-per-action has its limits. Porter Bibb with Media Tech Capital Partners says it's best suited to companies selling big-ticket items.

PORTER BIBB: It doesn't do a lot to build a brand image. If you're Bud Light, you're not going to click on a Google Bud Light ad and run down and pick up a six pack of Bud Light.

And when pay-per-action works, it costs advertisers a lot. So there still may be room for pay-per-click after all.

I'm Janet Babin for Marketplace.

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