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The CPA revolution of the early 21st decade

Although no exact date exists, internet-based advertising started in the early 1990s. Initially, the most basic form of advertising was the sponsorship of a website. By 1994, HotWired launched the first banner ads on the internet with advertisers including AT&T, MCI, Sprint and Volvo. In these early stages, the web closely followed the CPM model used in traditional advertising sectors. Although the CPM model is relatively simple, the early publishers were required to create and manage the technology that would deliver and track the ads.
 
As the amount of both relevant inventory and advertiser demand grew it became possible to make these tools more widely available, but at a high cost, through marketing networks. During the mid to late 1990's a number of such networks formed (e.g., DCLK, 24/7 Media, L-90, adPepper, Sabella Media, Flycast and others) and competed primarily on the tools and technology that they could provide.
 
As with other internet sectors, growth in the internet advertising industry has depended on the development of tools for serving, designing, and tracking online ads. The early networks provided a way to aggregate resources and develop new tools that would benefit a wide range of customers. Following the traditional marketing practice the networks originally priced ads by counting every thousand times an advertisement is seen and later also by the number of times someone clicks on the ad.

Affiliate marketing takes shape online

Meanwhile, during the mid-90s, a grass roots model called affiliate marketing was quietly being created by owners of adult and other sites, some being ecommerce sites like Amazon.com. These programs generated business by paying affiliates a fixed rate or a commission for directing paying customers to their sites. This type of pricing is currently known as Cost-Per-Action (CPA) and can take on many forms. By 1996 affiliate marketing was made fully mainstream when Amazon.com launched its program of online referral commissions.
 
Despite the technological advances being made at the time it was still very costly to launch and run an affiliate program in the late 1990s and early 2000s. However, the advancement in technology and software development in recent years has dramatically reduced the cost required to launch a successful affiliate program. Furthermore, it is now possible for networks to use OEM or licensed products from companies such as Direct Reponse (i.e., DirectTrack) to act as adverting brokers without developing their own technology.

CPA vs. CPM

Throughout the early stages of development the CPM and CPA model developed separately and tended to serve different markets. While CPM was suited to large brand name advertisers and sites, smaller players preferred the CPA approach. This all began to change the early 2000s due to a combination of technological advances and the uncertainty created by the dot com bust. On the one hand, CPA was becoming more attractive because tracking technology had matured into a reliable, robust and very cost-effective tool allowing a vast number of affiliates to be utilized. On the other hand, instability in the internet market and the economy encouraged advertisers to use CPA in order to reduce the risk of running a less-than-successful campaign. The CPA model reduces risk because the advertiser only pays for the ads that are successful.

However, it is obvious today that neither CPA nor CPM alone is the ultimate panacea for advertisers wishing to deliver campaigns or messages that are branded or lead-generation focused. This statement is evidenced by the fact that many advertisers regularly issue several types of campaigns including both of these. Furthermore, it is evident that the most cost-effective model is a blend the two.

Technological development in the online ad market has made technology irrelevant with respect to competition. However, ironically, tech advances have made powerful tools so accessible to all that the playing field is now level. This means that agencies and networks must now compete on some basis other than technology to satisfy its advertiser and publisher clients. As a result, traditional notions of customer service and relationship building have become, once again, far more essential, and in some cases a competitive advantage. Nowhere is this more true than in the field of affiliate marketing where the network and the publishers must work almost like partners to deliver a successful ad campaign.

Gregory R. Raifman is Chairman & Chief Executive Officer of Dragon Media Online, Inc., and its subsidiary DMO Global, Inc., a leading affiliate network solely dedicated to serving international and multicultural markets.  Raifman was the founder and Chairman & CEO of Mediaplex, Inc., [NASDAQ:  "MPLX"], a leading online ad technology company that merged with ValueClick, Inc., [NASDAQ:  "VCLK"], which provides a wide range of products and services that enable advertisers, agencies and their publishers to cost-effectively reach, recruit and retain online consumers.