People often look for the “tipping point” before understanding changes in an industry. The tipping point for TV was in the 1980s when cable television began to become popular vs. the free broadcast TV.
Why?
Channels like HBO and others got the attention of viewers. They wanted HBO.
But the real tipping point was much earlier. The real tipping points are the early signs, like mist rising from a lake. The butterfly wings that cause the hurricane later on.
In the online advertising industry I’ve seen several butterfly wing moments, starting with the Web before there were any ads.
Free link exchanges and then banner ads were introduced.
Banner ads are sold on what’s known as a CPM basis. Cost per thousand.
This was the first wave of Web ads. How many eyeballs did you reach? More like the TV model, viewership and audience size mattered. TVs assume someone is watching. It’s how TV continues to be sold, even cable carriage.
Let’s see how paid search ads evolved and then go from there. In 1998 a friend of mine, Bill Gross (founder of idealab) met up with me to show me something new he invented. We sat down in the lobby of a hotel and he opened his laptop computer and on the screen was his pay for click search engine idea. Advertisers pay more for the top click.
He asked my thoughts on it and I said it looked like a good idea. I shared some suggestions. Paid search (the old goto.com) was born. Paid search today is a $25 billion industry and what every search engine relies on for most of its revenue. It is the lion share of Google’s revenue by far.
Now 12 years later I think search is evolving again to an even better model: I’ll call it the Jerry Maguire model: show me the money.
What exactly is the Jerry Maguire paid search model? In online industry terms it’s CPA, cost per action. In other words, in a search an advertiser would only pay if the user actually does a completed action such as buy a product.
Now this idea isn’t entirely new. CPA has existed in the affiliate marketing world. But the model is new if you consider what if ALL ADVERTISING worked this way.
The advertiser only pays when a product gets sold. Another name for this is performance marketing. But I like the Jerry Maguire tag better.
I recently met up with a colleague in the ecommerce and ad space, Eric Best. Eric was one of the early guys at Amazon. He is now CEO of ecommerce services provider Mercent. Mercent has about 130 customers including PETCO and REI.
Mercent helps a retailer optimize their sales across many websites. As an optimizer Eric delivers to Amazon, search and others. He is seeing a few trends: even large search engines are embracing the CPA approach.
Part of this is Google’s acquisition of DoubleClick and its affiliate network that clearly opened Google’s eyes to pure performance advertising. (By the way, Google had to pay Bill Gross a sizeable sum for taking his paid search bidding model).
Also, click fraud is making advertisers leery of the cost per click model. The Maguire method makes that go away and it works with every industry, some better than others.
Leads (cars, homes, mortgages, credit cards, any sort of membership).
The advertiser pays only when the user provides their contact information. When I helped build the largest independent classifieds service on the Web leads is one area we used to generate revenue from car dealers.
Sales is the other main Maguire method. If the user buys a product then the referrer gets a portion of the sales price. Again, affiliate marketing is full of these but paid search isn’t (yet). Pay per click still dominates paid search.
In the big picture some of the larger advertisers on search engines have been using the CPA approach for years. For example, eBay pays hundreds of millions per year to search engines for new user registrations.
For each new sign up on eBay the search engine gets paid $x. The optimization is usually handled by independent keyword optimizers who arbitrage the wholesale cost on the search engine and sell it to eBay based on sign ups. Middlemen. Cheaper for eBay and more efficient. eBay pays on CPA while the middlemen pay on clicks and pocket the arbitrage.
This is how CPA advertising works today and it is limited to the Web and some mobile.
But I envision a future for advertising in every medium: TV, radio, print, billboards, direct mail, yellow pages, and more that is 100% based on sales and results rather than audience reached.
In other words, advertisers would only pay for actual predetermined results for every campaign.
No more CPM.
No more CPC.
No more general purpose non-accountable advertising.
It doesn’t matter if you reach 7 billion people on the planet as an advertiser if that ad doesn’t yield sales that not only pay for the ad but keep the company growing.
Advertising and marketing is going to enter a new phase and advertisers will be chanting: “show me the results”.
Or, as Cuba Gooding Jr. would say: “the kwon”.
http://en.wikipedia.org/wiki/Jerry_Maguire