This is the idea that the old CPA and lead gen models are inadequate measures of performance and therefore their pricing needs to change.
The problem here is knowing when a user clicks on an ad, and then buys a product, if it is as direct result of that ad.
What lies behind these issues is that click-through does not correlate to purchase.
It is worth a brief diversion to say a bit about why click-through does not correlate to purchase:
Research shows that some users are just “clickers” and will click on anything. Clickers make performance marketing less accurate. Clickers are not stupid, they are your wife. And they skew results.
2) Non clickers
Non-clickers make performance marketing less accurate:
“respondents said they were twice as likely to notice a web ad, not click on it, but visit the advertised site later (61 percent) as they were to click on an banner ad to reach a site (30 percent).”
DoubleClick Touchpoints survey, 2006
3) Click before purchase
The last click before a purchase is not the reason why that purchase was made. Intuitively this makes sense: I am personally more likely to click on an ad for Dixons than I am for ABC Online electrics ltd. This is a result of 20 years of brand-building from Dixons.
The question then becomes: why should I pay a lead-gen fee or CPA to an affiliate if they have not done the work? This is the most potentially disruptive one to all those elegant business models that we are backing.
How are people solving the above problems?
1) Clickers & non clickers
Agencies are trying to solve the problems posed by clickers but it’s not easy. One of the most compelling is that from Double Click who offer ”view-throughs”. With View-throughs, lead generation / CPA is paid even if the browser buys within 30 days of viewing. The problem is still far from solved.
2) Paying rewards based on effectiveness
If advertisers and their agencies are able to come up with one generic and widely accepted measure of effectiveness, then results can be paid. This is a fascinating area and I have covered here .
3) Media mix optimization
Due to the quantitative holes in performance marketing, some advertisers are seeking to attribute value to “total exposure” rather than pay for specific clicks: paying for exposure across the media mix.
NBC is trying out a metric called “total audience measure”, which tallies TV and online impressions: “you have to understand, every medium has a different effectiveness level”. Beth Comstock, president of NBC Universal Integrated Media
Opportunities for growth companies
The big issue for many start-ups with a revenue-model based on CPA or lead gen is the question of whether the last click before a purchase is the real reason for that purchase being made. I personally believe that the current system is the least-worst mechanism that we have and therefore PRICING WILL STAY THE SAME: The downward pressure on CPAs that would come from recognition of additional brand building will be netted-off by the overall shift in spending from mass to performance marketing.
It doesn't concern me too much that the last click before a purchase is not the reason why that purchase was made. Why? Because a great web app will act as a "noise reduction agent" to cut through the advertising clutter. This is one of the compelling things about Moveme.com (Advent Portfolio company): there is a clear development towards reducing the noise and concentrating on signal strength from publishers.
Affiliate Networks themselves are seeing some questions from advertisers about the true effectiveness of affiliate network campaigns . I have previous posted on this.
All web properties; from small blogs, through growing media-networks (like glam.com) to massively trafficked ad-driven models like Dailymotion will have to continue building bigger and more comprehensive databases of their users: profiles, demographics, likes, dislikes. Advertiser demand for this data will only grow.
I am also convinced that we’ve not seen enough from companies targeting specific influencers in key communities. I’m excited about businesses helping advertisers go after influencers in specific niches or providing horizontal tools to go after influencers in multiple verticals.
Finally, the enormous shift away from mass marketing and into analyzing performance marketing and targeting will create fascinating opportunities for growth:
• Managing customer data-bases
• Analysing customer data
• Automating the measurement and performance of advertising dollars on-line and offline