Google tightens its grip over e-commerce – Consultant view

Google’s beta test of a pay-per-action (PPA) model on its AdSense network is no great surprise. As the search giant has grown in power and confidence, so have its tentacles, with implications yet to be fully digested. Google is starting to muscle in on a type of performance-based advertising traditionally dominated by affiliate networks. This will be attractive to advertisers as will their ability to set the price they are willing to pay for an action.

It is true that more sophisticated advertisers will already know their "effective cost per action" (eCPA) calculated from their cost per click (CPC) and conversion rate. However, Google’s foray into this arena will potentially enable it to attract advertisers who like the idea of this transparency, particularly those previously deterred by click fraud.

Whether Google attracts budget from advertisers that had previously spent via affiliate networks remains to be seen. The value added by affiliate networks is based on a combination of technology, expertise and account management. Even if Google goes for a full roll-out of PPA, the affiliate networks will be confident they can keep both merchants and publishers on board because of their tailored service, which the search giant would find hard to scale up.

In the short term, it would be no surprise if Google limits its own upside from commission while it tries to build its appeal. From the perspective of publishers, PPA is likely to suit some but not others. Many existing AdSense publishers will prefer to operate with the current CPC model, taking the view that they should not be penalised by advertisers’ inability to convert traffic. Other publishers will embrace it as they can potentially earn more money.

It is a sobering thought that Google is developing such a stranglehold on advertising and commerce. Its move into PPA is likely to make this grip even tighter.

It is increasingly capable of understanding how much value it is adding to businesses and extracting its own cut accordingly. If Google Checkout catches on, it will control the transactional element of e-commerce, compelling companies to offer this payment method and making them even more reliant on the search engine for business.

Ashley Friedlein is ceo of E-consultancy.com