What does Google's move into the pay per action space mean for publishers, agencies and clients? Experts from Google and Jupitermedia weigh in.

At bottom, it's a simple concept: advertisers define an "action" -- anything from a signup to a sale -- and put a dollar value on it. Publishers then look over these action/payment opportunities, along with the associated ads, and decide whether or not to run any of them on their sites. Advertisers pay a publisher for each completed action, with Google taking a share of the revenue.

Affiliate networks have been offering a similar deal for years. But when Google does it, there are ripples. There are implications. There are possibilities that can swamp existing companies and totally rewrite the rulebook on how to succeed with internet advertising.

"We started out last summer with an early beta test," says Google's pay per action product manager, Rob Kniaz. "Over the past few months we've listened to feedback, figured out what additions people want, what tools they want. Now we're back with a much larger beta."

At present, Google won't name most of the participating publishers and advertisers, saying only that they number more than "75 of each."

"We're adding new participants on a rolling basis," Kniaz explains. "Any of our advertisers and publishers can fill in a form to say they're interested and we will consider them for this program. We have no limits as to how many to add or how fast to add them. We're accepting a wide range of participants. We have no end date for the beta, either. We simply want to evaluate and scale it as appropriate."

Many observers think Google's pay per action initiative is a very real example of the camel's nose under the tent wall. "It's the game changer for anyone doing online marketing right now," says Kevin Heisler, analyst, with Jupitermedia in New York. "I think it's going to completely change the way Google approaches search engine advertising, and it's only the first step in expanding it into search engine results. Right now it's only Adsense, but I see that changing as soon as they have some positive feedback from this current data."

One reason Heisler anticipates expansion of the program is that paying for actions rather than impressions is very attractive to many advertisers. Another is that this "test" actually puts Google into the affiliate business and gives them new power to throw traffic wherever they wish.

Even with many active players (LinkShare, ValueClick, Snap, and Turn, to name a few), total billings in the "affiliate" sector amount to only a small fraction of Google's double-digit billions. If Google decides to play in this space, how much room would be left for any others?

But for now, Google is focused primarily on fine-tuning the nuts and bolts of the system. For example, all of Google's pay per action ads are contextually targeted, but the pay per action system includes an ad-chooser, allowing publishers to see all the ads available, and select any or all they want to run. Publishers can apply some targeting of their own, and can even accept ads that don't quite match the context of their page.

According to Google's Kniaz, "Publishers are free to monetize their pages however they want, but most publishers will want to simply add these new advertisements to their current pages along with their existing ads. We're creating new inventory."

"What Google has done here," says Alan Lish, adjunct professor of entrepreneurship at St. Edward's University School of Management and Business, in Austin, TX, and a marketing and technology commercialization expert, "is make advertising more segmented, which is good for advertisers. Cost per exposure is not working on the internet because it's proven that a lot of exposures are meaningless.

"Paying for exposure is an anachronistic model based on how advertising was sold 20 years ago," explains Lish. "It doesn't account for the technological advances in advertising capability and delivery methods. Now we can get down to the single IP address, so you can identify your customer and pay only when he does whatever it is you want him to do."

Of course, some advertisers remain very "mass oriented." Burger King doesn't mind paying for exposure because a huge percentage of the people who see the ad are within its target market. The more targeted your product, however, the more cost-effective it is to speak only to your specific customers.

"For risk averse advertisers," says Heisler, of Jupitermedia, "this program could be very good. You don't have to worry about optimizing your campaign, or even deciding what keywords you want to buy. Just tell Google how many orders you want, at or below a certain cost per acquisition. For many years that's been a favorite way for online retailers to work."

As for publishers, those with high quality traffic and sites will do very well under pay per action, while publishers with lesser quality traffic will find it more difficult to compete. The program will also make things tougher on ad agencies, which are paid to optimize advertisers' campaigns. "Pay per action removes the opportunity to optimize," says Heisler.

Should Google decide to extend pay per action into the search engine realm, it could create a very disruptive change in the Google ecosystem.

"They'll be asking advertisers to share their clickstream data and their target cost per acquisition," observes Heisler. "This would give Google the chance to do vertical acquisition, like oil companies producing gasoline and then retailing it through their own gas stations.

"Google is already the gateway to the internet, and is capturing a significant amount of clickstream data. Anyone who comes to Google can be directed to any sites Google wishes. With pay per action, they have completely closed the loop. They can calculate who gets the orders, what value those orders will be sold at to the advertisers, even what margins they want."

Heisler calls it "a complete black box," because advertisers would obtain no insight into what's working for them. For advertisers, it's a great way to acquire customers inexpensively. "But to use it," says Heisler, "they must share their private data with Google, and there's no promise about what Google will do with that data."

Don't expect Google to reveal much about pay per action's performance. But much can be gleaned from watching the market as a whole. To the extent pay per action succeeds, you'll see positive comments about it from advertisers and publishers, and publishers will begin to leave their current affiliate networks.

Robert Moskowitz is a consultant and author who speaks and writes frequently in the United States and abroad on topics such as white collar productivity, knowledge management, practical use of the internet, telecommuting, caring for aging parents and the business applications of information technologies. Read full bio.