Google Launches CPA Ads – Problems with the Model

Google is now experimenting with CPA (Cost Per Action) advertising on it’s AdSense network, according to David Jackson and Search Engine Journal. Very interesting move, and in my opinion and taking us closer to “The Future of Search Engines” a blog that I wrote last year (and as you can see on the right hand side, one that I link on the top of my links!), and I think has been read by quite a few people so far (or that’s what my logs tell me).

I suspect that Google may start using the data in the CPA Ads to assist in determining relevancy at some point in time, not now but at least it’s moving closer to it. They’re going to have to work out all the fraud issues first – CPA engines have been a dream of mine since 2003, and given the fact that I’ve spent so much time trying to figure out this dream, that I’ve also encountered numerous pitfalls.

For instance, whilst using CPA ads in a distribution network like Adsense, you might find that you are paying CPA to Google for transactions that are fraudulent, but you only discover this after 90 days when the user chargebacks their credit card. It would be frighteningly simple for a rogue publisher from some backwater country to do the following, and get away with it:

1. Setup a site
2. Put up the ads
3. Click the ads on their own site (no click fraud)
4. Purchase using the stolen credit card (CC fraud)
5. Receive a check from Google for purchases on a CPA basis (alot more than a few clicks, because now the clicks are low, but the conversions are high – so no click fraud)
6. Receive the goods (or not)
7. Merchant receives chargebacks and is out of pocket for both the credit card charges & the goods.

That’s one scenario, and I could go into dozens more!

This knowledge really comes from experience in the affiliate marketing world as to the fraud that occurs on the affiliate networks. The CPA method in my opinion would only work on Google’s own site and selected high volume partners, as they have no incentive to commit fraud – the moment it’s opened up to the broader public, it’s becomes problematic. This is also one of the issues that networks like Commission Junction do very well at containing as they have had to deal with issues like this for year now and are equipped to assist merchants – I’m not sure if Google is equipped to deal with Chargebacks, Returned Items, etc, so I must disagree with David Jackson’s analysis in Internet Seeking Alpha (linked above).

Don’t get me wrong, Google are a smart bunch of guys, I’m just not sure if they have enough experience in the affiliate marketing world, or the systems, checks & balances in place to deal with the contingent liabilities of running a CPA Ad Network – but I’m sure they’ll figure it out!