How Google's New Ad Format Can Help You Grow

This article was written by Derek Gehl of Entrepreneur.com. Derek is the CEO of the Internet Marketing Center, an Internet marketing firm that has helped thousands of people learn to start and run their own online businesses.

Whether you buy pay-per-click ads or get paid to place them on your Web site, Google (GOOG Quote) is beta testing an ad format that might change the way you do business. It's called pay-per-action or cost-per-action. The stakes are bigger, but at first glance it looks like the odds are better, too.

What's Different?

Instead of the regular pay-per-click model, in which advertisers pay every time someone clicks on their ad, pay-per-action charges only when someone takes a certain action after they've clicked through from an ad. The advertiser defines the action -- a purchase, newsletter subscription, page view -- and the price.

These ads cost more than pay-per-click. It's a lot tougher to get site visitors to buy or sign up than to click through to a Web site, so the people who publish the ads on their sites aren't going to see as much action in terms of revenue. And considering the ad publishers choose which ads they'll use, advertisers have to make the rewards worthwhile.

There are three ad formats: text ads, image ads and text links, a new format from Google that looks like a regular hyperlink. All of these can be integrated into a publisher's site, and publishers can also promote the ads.

Because the action might not directly follow the click-through, results take longer. Google uses cookies to track visitors who've clicked but not yet performed the specified action.

It's close to the affiliate model that giants like Yahoo! and Commission Junction already use. Whatever you call it, Google's pay-per-action will give AdWords advertisers and AdSense publishers new flexibility.

Making It Work for Advertisers

Let's say you're selling a revolutionary new coffee filter that turns the cheapest beans into a mellow, full-bodied brew, and you want to try out pay-per-action ads. You decide the action you'll specify is a purchase. If somebody clicks through from an ad and buys your filter, you'll pay a commission to the site where the ad is posted.

But before you sell your filter to any actual customers, you'll need to sell ad publishers on running your ad. You'll have to try to attract people who run high-quality sites that appeal to coffee lovers who are serious about improving the taste of their java.