Google recently confirmed that it has begun testing a new ad format to be placed alongside its current text ads on search engine results pages (SERPS). The new format, initially for product-based searches, will include product photos, price, and links to online merchants.
While Google is constantly testing variations of their SERP layouts, this marks the first confirmed change to ad format since the inclusion of the Google Checkout logo within participating merchants’ ads.
CPC vs. CPA
In perhaps the largest departure from their current model, Google will not be charging merchants when users click on their ads, but instead charge them only if a user completes a purchase on their site. Some could argue that such a model encourages merchants to attempt to place their product ads in as many search results as possible without regard to ad quality and relevance.
Under the current CPC (cost-per-click) model, advertisers are motivated to keep their ads relevant to ensure higher quality scores and, in turn, lower costs-per-click. This leads to a better overall experience because users are only shown “high quality” ads. However, under the new CPA (cost-per-action) model, since merchants are not paying for impressions or clicks, there is an economic incentive to cast a very wide net. This creates the potential for an increase in less relevant ads appearing on SERPS, leading to a more cumbersome user experience.
While this is a valid concern, there are several potential solutions. The easiest of which is to simply apply a ‘quality score’ (similar to text ads) to each merchant’s product ad based on click-through rate, conversion rate, etc. This quality score would then dictate the CPA cost paid to Google. The economic incentive for merchants to keep ads as relevant as possible would then be in place.
