I was reading this article on Wired about Google’s recent drop in share price which is probably due to new data showing that click-through growth is slowing down for Google’s ads. There’s a lot of interesting stuff in there about what this might mean (Google talks about generating less click-throughs due to changes that should hopefully increase the quality of those clicks) but one line in particular jumped out at me.

“It’s not clicks that advertisers are really buying, it’s what those clicks get them, which is sales conversions,” said Sanderson.

This is something that we talk about a lot here. When we decided to go with the CPD (cost-per-day) pricing scheme, our biggest worry was that potential advertisers or publishers wouldn’t get it. CPM and CPC are the default metrics used for measuring ad performance across the industry and a lot of people seem to get kind of obsessed with them. It’s understandable, they are easy metrics to grasp and very easy to measure. The risk is that in focusing on these performance metrics, you can forget that they are really only indirect measures of success.

The only metrics that really matter to an advertiser should be CPS or CPF (cost-per-sale or cost-per-fan). CPC and CPM can help you to begin that analysis (which is why we offer both of these statistics as part of our analysis tools) but unless you complete the loop by analysing how many those displays turn into successful transactions (whatever that means for you), you haven’t really learned all that much.

-Tim

Over at the Freakonomics blog, they’ve been talking about click fraud. It began with this alarming report that 16.6% of all ad clicks are fraudulent across the industry and that in the case of Cost-per-Click advertisers like Google and Yahoo it was 28.3%. They’ve since followed it up with a post where Google explains that their algorithms are quite good and that they estimate that only 0.02% of clicks that pass through the network are fraudulent.

The challenge for the reader is to determine whether to believe the report of the “independent auditor” ClickForensics who offer third party click validation services and so have an incentive to skew high or to believe Google who, of course, have an incentive to skew low. In the end it doesn’t really matter, as long there is a mechanism to mechanically pay out money for clicks (or displays) there will be an arms race where shady publishers try to game the system.

Guys, this is exactly why we decided to stop selling advertising on these ridiculously open-to-abuse pricing models! There’s a Better Way!

-Tim