How Google Will Dominate “Cost per Action” Affiliate Marketing

Affiliates have a lot to worry about these days. Advertisers themselves are busy divying up affiliates’ commissions among themselves. The The New York Supreme Court, Appellate Division issued a ruling on the so-called Amazon Tax that wasn’t the most positive for the industry. But there’s another burning issue that the industry should be watching which deserves an update: How Google is crowding out AdWords advertisers, as well as advertisers from other affiliate networks, by swapping cost-per-click ads with cost-per-action image ads from Google Affiliate Network (GAN) advertisers.

By placing cost-per-action (affiliate) image ads in the space where AdWords ads traditionally appear, Google is elevating it’s Google Affiliate Network.  And it’s tapping into a new revenue stream.  As I see it, ValueClick’s (VCLK) Commission Junction unit is suffering, so is Rakuten’s LinkShare.  As are retail advertisers who choose to not work with Google’s GAN.  In fact, I feel, they’re under increasing pressure to make a switch.

Quick history

About a year ago, Adam Viener did a great job explaining what Google’s latest move actually looks like.  Tactically.  And it’s impact on user experience… in one instance at least.   Lousy.  A great point. Also Google’s support of GAN seems to indicate a purposeful effort to squeeze out affiliates specializing in direct paid search from working with other networks because doing so essentially risks the “ban hammer”.

Shortly thereafter, GAN’s Larry Adams showed up to put a spin on it:

“It’s not a Google Affiliate Network product.  It’s an AdWords feature product listing experiment that the AdWords team is doing both with ad format and also with pricing model, so, it is a CPA pricing model that is targeted for products that retailers sale.”

Positioning it as “experiment” that is part of another division indicates it is out of GAN’s hands. But still the products being offered are being powered by GAN advertisers not just by those who have feeds in Google Base.  Larry does not deny what’s going on but confirms it in a way that is positioned to not infuriate affiliates.

More importantly, by making this “not a Google Affiliate Network product” Google deftly bypasses any “exclusivity” restrictions that networks like Linkshare still archaically enjoy imposing on their advertisers.

Google’s strategy revealed

Sure, social media and the “real time” Web matter.  They’re eating away at the time spent searching — for years now.  But Google still “owns” search.  And search, the habit, is still going strong.  So Google, wisely, is using its position to gain control over CPA affiliate marketing.  And a year since Adam’s article and Google is showing no signs of slowing down with its experiment.

So what is Google doing for its Google Affiliate Network advertisers?  And for itself?  And why is this huge?

Google is now offering preferred search ad placement and superior search ad terms to advertisers who agree to use Google Affiliate Network.  Google is literally inserting product images of GAN advertisers’ products into the space currently occupied by cost-per-click AdWords ads.

Actual product images making them in essence cost-per-action ‘display’ ads that appear where formerly “only” cost-per-click AdSense ads are running.

Says Ben Edelman in his recent research:

“Competing affiliate networks cannot match these benefits, and Google’s bundling strategy threatens to grant Google a position of power in yet another online advertising market.”

And that’s what makes this a sizable shift, Google is tapping a totally new revenue stream.  Not a bad trick.  It’s literally becoming, itself, an affiliate of its advertisers.  Gosh that sounds decades-old familiar.  We were doing that back in the days when GAN was a start-up called Dynamic Trade.

What’s good for Google is good for Google even if it reeks of Antitrust issues

Here’s where it gets rich for Google. Many of Google’s advertisers (if not all) are competing.  They’re running their own cost-per-click/Adwords campaigns in the same space.  They’re participating in AdWords.  That’s not changing although it’s slowing down lately.

Confused?  Don’t be: Just continue to pay Google even if you’re slowing down your cost-per-click AdWords spending.

Indeed, pay Google an inflated cost-per-click price.  In theory, Google itself (through the GAN division) is now competing for search terms with other advertisers.  Right?  The price of that limited amount of space, in Google’s auction, now goes up… for all advertisers competing for that search term.  Right?

Hence, although the AdWords market is slowing down Google can prop it up — with demand it creates for itself.

Ben Edelman sees it this way…

“First, GAN’s tying threatens to extend Google’s dominance into yet another facet of online advertising… Second, GAN’s tying harms those AdWords advertisers who refuse GAN and buy only pay-per-click ads from Google.”

Ben goes on to have trouble with Google offering, “the Product Listing Ads benefits in ‘limited beta’ available only to ‘a small number of participants’ Google selects.”  But he says numerous advertisers, large and small, are promoted in Product Listing Ads.  And that Google’s offering preferred listings only to those advertisers it chooses to favor isn’t very equitable for advertisers in general.

“Elsewhere Google argues that its auction-based ad sales are “equitable.” But when Google gives superior placement to its preferred advertisers, for nearly a year, Google’s rules seem the opposite of fair.”

Surprisingly what Ben fails to bring up is that in purchasing Performics and developing GAN, Google had a significant fight with the Department of Justice antitrust authorities as well as the European Commission, the antitrust authority of the European Union, over the search component of Performics’ parent company Double Click (which was the property Google purchased to acquire Performics). Which is why that component got sold off to Publicis in 2008 as a compromise to avoid antitrust issues.

Doesn’t Google’s maneuvering in product display reek of the same antitrust issues?

Gnawing at the hands that feed it

Even in times that weren’t that tough, Google has a tendency to bite at hands that feed it.  But lately it seems like they gnaw. At? Cost-per-action (CPA) affiliates, of course.

Google always finds new ways to serve the changing appetites of small and large advertisers who want sales.  Direct ways that cut out the middle-men when needed.  And lately, it’s needed.  So Google, as Larry mentioned in the GAN interview, isn’t slowing down.

In a move that’s caused almost no discussion (gone unnoticed?) Google created its own mortgage comparison shopping “super affiliate” in late 2009.  But today we find Google on track to dominate a market that just three years ago it had no offering in.

Cost-per-acquisition/action (sale/lead) marketing on the retail side. Of course, it does this with the endorsement of its advertisers.  I suppose they’re lapping it up although nobody is talking much about it, yet (If any brave retailers out there reading please share your take here…anonymously even). That’s how I see it and I’d be glad to listen to your thoughts and experiences. How do you see it?

About Jeff Molander

Jeff Molander is the authority on making social media sell and corporate trainer to small businesses and global corporations like IBM and Brazil’s energy company, Petrobras. He’s an accomplished entrepreneur, having co-founded what is today the Google Affiliate Network. He’s adjunct digital marketing professor at Loyola University’s school of business and author of Off the Hook Marketing: How to Make Social Media Sell for You.

Website: JeffMolander.com

Blog: Off the Hook Blog

Answers: AskJeffMolander.com

You can find Jeff on Twitter @jeffreymolander.

7 Responses to How Google Will Dominate “Cost per Action” Affiliate Marketing

  1. jeffmolander says:

    I'd like to publicly thank Angel for a good bit of coaching and contributing to this piece. Just for the record 🙂

  2. Pat Grady says:

    speaking of G and Affiliate lines blurring…
    nytimes.com/2010/11/18/fashion/18googlefashion.html

  3. jeffmolander says:

    Hey, Pat. EGAD! It's amazing how these reporters are so busy trying to entertain us that they walk right past the real story. When you point it out to them the say, "oh, that's interesting but it's too 'behind the scenes for readers'." Really?!

    "It is a place, then, to show off your fashion acumen, much as millions of Polyvore users already do with their picture collages…"

    No it's not numbskull. It's a place to gather intimate "social" DATA on retail that Polyvore won't share (basis its business on).

    Forget these guys. Watch http://purchlive.com if you want to see a company that really gets the data aspect of this stuff. Polyvore will sell out to some dumb money. But watch Pipit.

  4. would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well. In fact your creative writing abilities has inspired me to start my own BlogEngine blog now. Really the blogging is spreading its wings rapidly. Your write up is a fine example of it.

    • Pat Grady says:

      and what inspired you to become a link plopping dolt? and to choose to call yourself an seo consultant?

      i googled a piece of your post, seems you've been very busy telling G your site is the work of a shallow, specturdular spammer. i applaud your willingness to so easily reveal your amateur malinformed status by attempting to employ truly idiotic tactics amongst the pro marketers here, chutzpah spawned from ignorance is like staring at a very bad toupee, i can't take my eyes off it.

      i would appreciate it if you uploaded a picture of yourself like this:
      outofkilter.net/images/prasannash__silly-dog-with-toupee-funny.jpg

  5. Bommdinger says:

    I DONT GET WHY THIS IS BAD FOR THE USER OR ILLEGAL? let's compare two SERPs to a searcher of Adidas cleats size 12 – the original has links to some cruddy CSE that may or not have what you are looking for. so the searcher clicks through and evaluates products on a different page. Or the new Google display will have the picture with real-time inventory from that client – so the user finds what they are looking for faster? That is a lousy user experience? Google is doing something illegal by getting comp'd for a lead. Everyone, please get over the sensationalism with Google