How Internet Advertising Works: Traffic Arbitration
Cost Per Action is an advertising model in which an advertiser pays only for certain actions performed by a user on his website (click, register, subscribe to a newsletter, purchase), rather than abstract displays of his ads. During the active distribution of this scheme of payment for advertising on the Internet, it was believed that it would allow companies to optimize costs and get the most out of advertising.
However, life has made adjustments, and the real benefits of the CPA model are not only advertisers, but the advertising ecosystem itself has become much more complicated.
What is CPA and who is this model suitable for?
In the West, the term CPA is often interpreted as cost per acquisition (“payment for the acquisition”), because for online stores that are the main advertisers for this model, it is important that the sale is completed. In Russia, such an understanding of the term has not taken root, and the term CPS (Cost Per Sale) is used to designate a model that implies payment for real sales.
One of the types of CPA is the direction of lead generation (CPL - cost per lead), in which the main task is to collect contact and demographic data of users - this way their identity becomes known, while with classic CPA, targeted actions can be carried out by anonymous users.
First of all, the payment model for actions is suitable for companies that sell real goods or organizations that mainly promote their services on the Internet. Among such companies, most often CPA advertising is used by online stores, banks, travel companies and online games, hosting providers, airline and hotel reservation services and representatives of offline businesses (lawyers, car services, construction companies, etc.) also resort to this model. .P.).
Affiliate marketing, involving the creation of affiliate programs, was prevalent even before the advent of the Internet. With the development of the network, a large number of affiliate programs have appeared, working on various schemes. Initially, they completely copied offline the organization of such programs (the advertiser’s site hosted forms in which it was necessary to enter the site or the person who contributed to the visit of the target resource). Later, the mechanism was improved - the concept of referral links (and even later - cookies) appeared, which made it easier to track visitors.
Then there was a shift towards automation of processes - if at the first stage the advertiser had to develop and install the affiliate program software on his website, then later advertising networks (mainly involved in placing banners) appeared, combining a significant number of sites that just needed to be connected .
In particular, there are CPA-affiliate programs (“affiliates”), which consist in the fact that the advertiser shifts some of the efforts to attract customers to the shoulders of webmaster partners — site owners receive affiliate links or banners, “bring” potential customers to the target site, and then get paid if these users complete the agreed actions.
In order to secure a profit, the webmaster must take care of the quality of the traffic, and not just strive to “pour” it as much as possible.
The main disadvantages of CPA
Theoretically, with the advantages of the CPA model, everything is clear - this is transparency (the advertiser knows what he pays for), cost savings (payment only for business-important actions) and traffic quality (left-wing visitors will not take the necessary actions). In practice, the CPA model has a number of disadvantages.
Firstly, the CPA does not take into account the quality of the audience - despite the fact that this model allows you to attract users who perform certain actions (that is, it’s not really “junk” traffic), conversion can be carried out only once (this is possible when providing discounts - by they are pecked by "freebie lovers").
In addition, the CPA model does not work well in the face of price elasticity - the cost of advertising resources can change depending on time (for example, during the holiday season, advertising for many products rises in price because people buy more and store competition increases).
CPA refers to rigid advertising models and takes into account only the factor of the desired actions. As a result, advertisers do not increase advertising costs when it’s worth it, as the quality of traffic increases.
Some experts conducted experimentsand found that advertisers using the CPA model get poor results during the holiday periods - the graph below shows the return on online store advertising for the CPA model during Thanksgiving in the United States. The company did not raise costs, as a result of which the number of registrations decreased sharply.
This experiment illustrates the fact that the CPA model does not take into account an important factor in the value of a particular client - not all users who complete the target action are equally important to the business. From this point of view, the distribution of advertising costs in terms of potential returns at a particular point in time seems to be a more effective approach.
Monetization of traffic through CPA
Paying for actions implies higher advertising prices than using other means of attracting traffic than some webmasters have begun to use - they are called arbitrageurs.
To implement the arbitration strategy in the CPA partner program, webmasters attract cheap traffic from sources permitted under the terms of cooperation (it is often forbidden to catch people through newsletters, from adult sites and through contextual advertising) - if in the future these users commit targeted actions, then payments webmasters will block the cost of attracting traffic and allow it to go in the black.
Here is an examplea similar arbitrage strategy, which was described by a blogger under the nickname Wildo, writing about market insiders. It is necessary to attract traffic for the Reborn game (MMORPG genre), while the partnership conditions are as follows - users must be from the CIS countries, the registration fee for the game is 0 rubles, the webmaster receives 52 rubles for the active player, and the second attracted active player already 103 rubles.
They don’t pay anything for the fact of registration, so a simple “traffic surge” will not do it. Among the prohibited sources of traffic did not appear on social networks, so Wildo attracted him there by purchasing advertising. In total, about 25 thousand rubles were spent on this (29 thousand minus a discount in the agent’s office of VKontakte):
By redirecting this traffic to the advertiser's website, the arbtrager managed to attract more than 2440 active players, for whom, according to the rules of the system, he was credited with more than 39 thousand rubles:
Net profit of the arbitration strategy amounted to more than 14 thousand rubles. A similar affiliate program of the game Neverwinter also allowed the arbitrageur to get a good profit on the difference in the cost of attracted and sold traffic.
You can monetize absolutely any traffic - the same blog provides an exampleaffiliate program of online accounting “My business”, thanks to which webmasters could earn 150 rubles for “high-quality” registration and 1500 rubles for the purchase of the service (the amount increased to 2500 rubles when purchased in the specified period of time). The referral marketing approach was also used there - for attracting a new active participant in the program, the webmaster received 500 rubles and another 30 rubles from each client he brought.
As you can see, arbitrage strategies can be very profitable - webmasters who are involved in this craft often even hire designers to help them prepare advertisements.
There are a lot of people who want to learn the art of arbitration - such courses are very popular and cost a lot of money.
The number of CPA affiliate programs is quite large, new ones appear almost daily, and working with them often carries certain risks for the webmaster.
The cost of entry into the business of CPA networks has declined over the past few years, and now you can start your network without significant start-up capital, while attracting webmasters often with promises of high payouts. However, the network itself receives money from the advertiser only after they receive the desired actions (for example, in the niche of postal goods they pay for a confirmed application, and not for a paid order).
In turn, webmasters are waiting for payment for their work immediately after they have brought quality traffic - as a result, ad networks are forced to pay them out of their money, and then make up for money by paying from advertisers. Often, such a cash gap leads to the inability to fulfill obligations in full, so webmasters should work with trusted networks.
At the dawn of the formation of the market for CPA affiliate programs, fraud was widespread when webmasters deceived advertisers (and their analytics systems) by selling them black traffic.
Among the methods of cheating advertisers is the use of proxy servers that allow users to assign fake data, replacing the address of the site from which the user came, cookie-grafting and cookie-stuffing (“tossing” cookies to users of sites that they supposedly visited - this is an interesting case for using viruses for getting the right traffic) or the use of motivated traffic.
Over time, the main analytical software packages have learned to withstand attempts to cheat, and the market has madea big step towards his "whitewashing". Now the volume of the Russian market for CPA advertising is estimated at 3.5 billion rubles per year.
As an anonymous traffic seller said in an interview published on Habré, in the field of mobile CPA, a situation is now widespread when advertisers are selling “black” traffic - for example, motivated application installations, when users are offered bonuses or small money for downloading.
Motivated installations can be bought at 20 cents and sold at $ 2.
We can assume that with the development of the entire mobile advertising market, black and gray will be a thing of the past and most webmasters will work in white, as is the case with CPA on the web.
What will happen to CPA
The CPA model is still not so common in the field of serious business - for example, in the field of electronic commerce. Not so long ago, representatives of Yandex reported that the growth in the use of this model in Yandex.Market is slower than anticipated.
Despite the presence of some minuses, the CPA model of payment has significant advantages - with its help advertisers are able to attract targeted users and save advertising budgets, in addition, this scheme is well suited to increase brand awareness (awareness).
All this will lead to the fact that in the future CPA advertising will be used not only by businesses operating in the entertainment or gaming industry, but also by serious companies accustomed to working with traditional means such as “context” - CPA will become another advertising tool along with RTB - advertising .