Web hosting companies are paying close attention to Google’s entry into pay-per-action (PPA) advertising, a major source of customers for shared hosting companies. Google’s program, which was announced Tuesday, is in limited beta testing with both advertisers and publishers. But with its huge existing base of pay-per-click (PPC) advertisers, Google is expected to quickly become a disruptive player in PPA, also commonly known as affiliate marketing.
PPA affiliate programs offer a fee for customer referrals from third-party web sites, and have grown in importance over the past year as more web hosting companies have launched referral networks. While pay-per-click programs offer a fee each time a visitor clicks through to their site, pay-per-action programs only pay out when a customer signs up for a hosting account.
The fierce competition for customers is reflected in the lucrative bounties being paid for affiliate conversions. There are currently at least 10 hosting companies offering between $100 and $150 per referral at Commission Junction, which manages a network of affiliate programs. Those fees are typically offered when a customer signs up and pre-pays for a term of at least one year.
Some hosting companies have cited AdWords "click inflation" - the rising cost of keywords - as a motivation for shifting their focus to affiliate marketing, where each payout produces a customer (rather than a web site visitor). In many ways, the hosting industry provides a textbook study of the effectiveness of the auction-based AdWords system in maximizing profits for Google. The large volume of hosting advertisers creates competitive bidding for desirable hosting-related keywords, driving costs higher.
It's too early to say whether that pattern would hold true for Google's PPA program. But PPA ads also have the advantage of eliminating click fraud as an expense for advertisers and a quality control headache for Google, since only signups generate a fee and bogus clicks have no value. While Google has consistently stated that the incidence of click fraud is extremely low, reports of ad-clicking botnets persist as well.
Some hosting marketers link the upward trend in affiliate fees to the growth of hosting "top 10" sites that guide web searchers to hosting providers. Since the top-ranked sites are generally those with the highest affiliate payout, a hosting company offering a generous referral fee can quickly gain visibility atop the rankings.
But one authority on search believes Google's pay-per-action program could alter the quality of content in affiliate networks. "If they push this as hard as they did AdSense or search it is going to teach advertisers and publishers to create efficient conversion oriented content and sales funnels," writes Aaron Wall of SEO Book. "It will fundamentally change the structure of the web."