March 21st, 2007

Will Google Bring Affiliate Marketing to the Masses?

The NY Times reported today that Google is testing a system where advertisers pay only for results, also known as “cost per action.” Under this system, advertisers determine what they are willing to pay for a specific action, whether a purchase or a lead. Web site publishers can then chose whether to run any such ads on their sites.

While the article is short on details, probably limited by what Google will reveal, the implications are tremendous. Google is essentially creating its own affiliate network, which, with its reach, savvy, and typical ease of use, may make affiliate marketing available to the masses. While affiliate marketing has grown and makes sense for many companies, there are generally more challenges and upfront costs involved than with other interactive channels, including search advertising.

This could be nirvana for advertisers if Google can convince and make it profitable enough for a critical mass of publishers. While advertisers would still need to develop great offers and creative to make it work, the upfront risks with advertising campaigns would be greatly reduced from their perspective — and they could potentially test creative and offers at little or no loss.

For publishers, it could be an effective way to generate revenue from remnant inventory. And if Google can develop an effective, automated way to predict how much revenue a specific ad on a specific website would generate, publishers may be able to use such a system even more profitably. The Times article points out that Advertising.com uses such a system to determine placement for cost-per-action ads on publishers’ sites now.

Website visitors will benefit with maximum relevancy of the ads presented to them, since all parties will be incented to make sure of that.