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Should performance decide net ad payments?

Should performance decide net ad payments?

Advertisers, like everyone else, are suffering from performance anxiety. I am not surprised to hear that more online advertisers want to pay their digital agencies and online publishers using the performance-based payment model rather than taking the traditional “pay by appearance of the ad" approach. Many digital agencies and online publishers, however, are wary since each advertiser has his own definition of performance.

Mahesh Murthy, CEO and founder of digital marketing firm, Pinstorm, tells me that

There are two types of online ads—branding ads and response-driven ones—and payment models have evolved for both. Explains Murthy: In branding ads, the old payment model was based on cost per impression, or CPM (the so-called cost per mille or thousand), impressions. Payment was based on the number of times the ad was shown, irrespective of whether they were all shown to the same person or to different ones, or of where they were on the page—in a high visibility position or below the fold. Rates also didn’t consider the size of the ad.

Also Read Marion Arathoon’s earlier columns

This graduated to cost per impact, which considers the number of unique viewers of the ad, the position of the ad and the pixels in the ad—all key for branding and visibility.

In contrast, payment for response-driven ads was traditionally calculated on the basis of cost per click or how many times the ad was clicked on. This made way for cost per lead where a click on an ad leads to a page which usually has a form to be filled up. This leads to cost per acquisition of real, paying customers in which the transaction of purchase or product order is completed. In turn, a flat fee is paid to the publisher and agency per buyer.

The digital realm is now slowly moving to a revenue-sharing model, whereby digital agencies get a certain percentage of revenue generated via the ads they create, buy and serve. It’s a big risk but the potential rewards are high too, says Murthy. Revenue-sharing deals between agencies and clients are usually based on 30-day cookies. So revenue generated from an order placed by a consumer acting on the ad within a month will be shared with the agency. In rare cases, contracts for longer durations or even lifetime cookies are being agreed upon as digital agencies push for contracts of longer duration than the standard 30 days.

As seen, the definition of performance clearly varies. Some advertisers may agree to pay their digital agencies or publishers based on revenues generated by the ad, some on the basis of video views, and some others by the number of forms filled, among others. Amar Deep Singh, vice-president, business development, of full-service digital agency Interactive Avenues Marketing Solutions Pvt. Ltd, says the best example for pay-for-performance is Google where an advertiser needs to pay only once the user clicks on an ad.

Intermediaries such as ad networks and affiliate networks also work on a performance model, though again, the definition of performance varies, adds Singh.

He warns that networks and agencies which have drawn the line at clicks and in some cases leads (where campaigns are managed well) have been fairly successful and others who have gone beyond have struggled. “Advertisers, in their own interest, will always push publishers/networks and even their agencies to always go beyond clicks. However, in their own interest, publishers/networks and agencies should know where to draw the line, learning from the past where because of revenue and other pressures, they’ve accepted crazy models and burnt their fingers."

Some digital specialists say the performance model could one day extend beyond search ads and Google to all Internet and mobile advertising, including display ads, digital formats of TV and print. Lynn De Souza, chairman and CEO of Lintas Media Group which embarked on the pay-by-performance path with Pinstorm last March, says the performance model in Internet advertising is widely used for search campaigns which do not have a “creative" component.

Its success and rapid acceptance among clients have encouraged many advertisers and agencies in the West to apply this model to all forms of Internet campaigns, including those using display and social networking, she says.

“Since the Internet is highly measurable (if you can control click fraud), it is possible to clearly define the objective of a specific campaign—which could be as simple as lead generation or go all the way up to actual sales or softer ones such as number of positive mentions of the brand for a social networking campaign," De Souza adds.

In India, however, clients are used to paying a design fee for creative and a separate media agency commission instead of one lump sum amount for a guaranteed result, points out De Souza.

That could well change.

Marion Arathoon is Mint’s advertising editor. Your comments are welcome at advalue@livemint.com

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