Why CPL has a long way to go to replace CPC: Part 1

In an iMedia Connection article published last week it was suggested that CPC’s days as an advertising metric were numbered.  That, much like is happening with CPM advertising, CPC based advertising mediums and agency models are set to become extinct as companies look for more performance based metrics to ensure profitability of any advertising spend.

I have written in the past about how the difficult economic climate could reap rewards for affiliate marketing and other paid on performance models, but I have to disagree with the statement that the advertising industry will need to move towards a CPL/CPS based pricing model in order to maintain its growth in popularity.  Whilst pure performance based advertising models are very attractive on the face of it, they are not as straight forward, and simplistic, as they might sound.  In fact, the downfalls of PPC advertising identified in the article could quite as easily be applied to CPL and performance channels as well:

“Increasing costs of keywords”: could quite easily be applied to increasing costs of leads.  The increased cost comes from competition, the more advertisers wishing to “buy” the lead or click, the more expensive it becomes, simple supply and demand.  This is potentially even more magnified in affiliate and cost per lead advertising as the market is more finite and less developed.  A CPC advertiser in a search market may be priced out of the more generic, high volume keywords, but can still gain traction in the lower volume specific keywords.  In affiliate marketing all the leads go to the highest bidder, and there is less of a long tail for those with a smaller CPL target.

“Increasing click fraud”: The author doesn’t state how he is judging it to be an increase just states Google’s Q3 stats.  I have worked in search marketing for 5+ years and I think that there is less click fraud around now than in the days of straight bid auction systems.  What has increased is awareness of the problem and the ability to report the stats.  I have also worked in affiliate marketing and from my experiences I would say there is far more fraud in affiliate marketing than you ever see in search.  Affiliates and partners try everything in their power to claim the leads which come through your website.  From filling in bogus details themselves, to cookie dropping to claim leads which weren’t directly theirs.  I have seen fraud as high as 70% through affiliate marketing!

“Lack of Transparency”: Ditto with CPL advertising!  multiple affiliates claiming each lead, lack of number tallying between affiliate tracking systems and in house technology, lack of clarity on the affiliates driving the leads, the list could go on.

“Difficult to tie in with business metrics”: Whilst you can build a CPL model which “should” fit your business goals, the points made above make this very difficult.  More difficult I would say than with paid search.

Whilst I am not trying to discredit CPL/CPS advertising I think there is a long way to go before it becomes a replacement for CPC advertising.  Paid search and other CPC forms still represent the most measurable and trackable form of advertising and they are still much more measurable than other channels, both on and offline.  I believe paid search is set to grow as it gains budgets originally allocated for display advertising online, and similar offline channels such as TV, radio, billboard and magazine, all of which have much less accountability.

A quick view of the authors profile produces the reason for his apparent bias, he is the Co-founder and CEO of a lead generation market, that explains a few things! Performance based advertising may be the future, but it has a long way to go before it replaces CPC, the main reasons for which will follow in part 2…