Is Pricing Per Transaction the Coming Ad Model?

Hybrid cost-per-transaction ad pricing models increasingly are showing up on the Internet and some advertisers are requiring that ads lead directly to sales.

“The hybrid model is for e-commerce advertisers who are looking to generate sales as a result of banner advertisements and links,” Rich LeFurgy, chairman of the Internet Advertising Bureau, told Adweek. “It’s where I think the market has evolved to.”

LeFurgy said the shift toward hybrid models has been emerging for about three to six months, though the overall ad community still prefers CPMs because they are easy to valuate.

The deals are mostly long term, about six to 12 months, because it takes time to develop a track record, Adweek said. And what the advertiser pays up front is typically a lower amount than a straight CPM.

“This is really equitable for both parties because the media site gets valuation for its audience. The advertiser gets a [model] that’s more performance based,” LeFurgy said. “In this case, both parties get what they want.”

One proponent of cost-per-sale models is Myer Berlow, senior vice president of interactive marketing at America Online. “It’s really in response to our effort to create a business model that is a win-win for both sides,” he was quoted as saying.

Not everyone, however, is sold. Most content providers have been reluctant to take responsibility for so many unknowns. What if an advertiser’s ad is not compelling, for example, or its prices not competitive? What happens when the server at an online store gets swamped or its secure ordering is too complicated? “It’s really troubling to some new media companies because it puts all the risk on them,” LeFurgy said.

More details on the topic are available online.