Google is testing a new advertising system that allows businesses to advertise on a cost per action basis. You can find Google's own announcement here.

How does Google's new product work?

Until now, Google has primarily sold pay-per-click (PPC) ads, so-called AdWords ads: advertisers pay when someone on Google or a Google partner site clicks on the ad.
Google AdWords has one big advantage and one big disadvantage: You only pay for clicks of potential customers, but you risk paying a lot of money for nothing because of click fraud.
There has been a lot of debate around click fraud because Google has a short term financial incentive to promote it. Google's new advertising product is "pay per action" (PPA). You don't pay per click anymore but you pay when a customer takes further action, such as requesting a catalog, signing up for a newsletter or buying a product.
PPA advertising is meant to mitigate the risks of click fraud.

How can Google track the action?

If you use Google's PPA advertising product, then you must use Google's conversion tracking code in the HTML code of your web pages.
Of course, the advertiser has an incentive not to confirm the action, but cheating does not make sense. Like PPC ads, PPA ads will likely be ranked by profitability to Google.

What are the consequences for the market?

Google will be able to better maximize revenues on its advertising network, and it also should allay the concerns over click fraud.
Google's new PPA program is in direct competition to affiliate marketing networks such as Commission Junction and LinkShare. Publishers could leave those affiliate marketing networks and concentrate on Google's PPA program.
Yahoo und Microsoft will certainly offer similar PPA programs in the future. The current players on the PPA market Snap and Turn now face heavy competition.

What are the consequences for you?

If you already track the return on investment (ROI) on your PPC ads, then you won't be affected much. If you don't track the ROI yet, take a look at ROI tracking tools such as AxROI which can save you a lot of advertising money.
If you are a smaller advertiser, then PPA advertising could mean that you will pay less for better results in the future, and that you will never worry about click fraud again.

Note that Google's pay per action program is currently in beta test. This means that there are some limitations:

• participation is by invitation only, you must fill out a web form to request participating in the program
• the PPA program is currently only available to US customers
• ads are limited to Google's content network of partner sites (Google AdSense)

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