Don’t you think that this might be a reason for outsourcing PPC? With CPA this risk would be completely eliminated.

I didn’t say that not more or less companies would outsource their PPC. I actually do believe that fewer will, but I don’t think that this is reason enough for a mass-abandonment of the services of PPC agencies. So I believe we agree on the general idea and probably only conflict when it comes to the exact numbers :)

Andreas

It’s not performance-based, there are no incentives for the agency, and I think this mechanism will disappear in the future.

I wish, affiliate marketers make this point for years. Some advertisers who are a bit more knowledgeable use their massive affiliate work force as their PPC agencies who works on performance basis only, no risk whatsoever.

However, there are things that should be regulated for all fairness. This includes the permission for some selected affiliates to bid on more profitable terms (e.g. trademarks and brand) to help “owning” the SERP (and not a competitor). It also compensates a bit the coverage of the less profitable long tail, the merchant himself is virtually unable to cover to the full extend. Affiliates who are working on performance basis only do naturally also another job for the advertisers… they monitor and report abuse by other affiliates or activities by the advertisers competition.

Would they still accept SEM affiliates under CPA?

So the answer to that question is: YES.

SEM agencies are usually paid based on advertising spend and not per performance. They bear today virtually none of the risk for the advertiser.

It’s true, the majority of agencies are paid on advertising spend. I think that in fact they somewhat do reduce risk as they are experienced in what they do. However, charging based on advertising spend is the worst of all known compensation mechanisms. It’s not performance-based, there are no incentives for the agency, and I think this mechanism will disappear in the future.

For affiliates would not change much and it might even be a good thing from their point of view.

Why? One motivation of accepting PPC affiliates for an affiliate program is also risk reduction. Just let your affiliates test millions of keywords without spending anything! With CPA a merchant could bid on any term related to your company and you would never lose money. Furthermore many merchants see SEM affiliates as a risk for their own brand. Would they still accept SEM affiliates under CPA?

I do not believe that the much more advertisers would take the job in-house rather than outsource with CPA as pricing model. The exception are advertisers who try it in-house first and “get burned” today with the PPC pricing model, if they don’t know what they are doing.

As PPC becomes more and more competitive (higher bid prices), the underlying risk of losing a lot of money is increasing. Almost every new PPC campaign is unprofitable at the beginning, and thus requires a considerable investment. Without specialized skills and technology it takes much more time to break-even and requires a much higher investment. Don’t you think that this might be a reason for outsourcing PPC? With CPA this risk would be completely eliminated.

I believe that the risk of abuse by Advertisers to get free exposure via non-converting ads is negligible. Low traffic keywords with no competition mean also little exposure for the advertiser. In addition, Google can always implement thresholds that will drop ads that do not convert enough (or at all).

I agree with you, that it probably isn’t that easy to misuse the CPA model to get a free branding effect. But nonetheless the main problem remains. It will Google take a lot of time to realize whether such low volume keywords will convert or not and thus ranking ads for low volume keywords will be a difficult task.