So many people have jumped all over David Jackson’s shorting of (Valueclick) VCLK stock and predicting the doom of its Commission Junction unit… so many that you just have to believe that Jackson is onto something.  In fact, he is; Google (GOOG) will, indeed, be a CPA (cost per acquisition) advertising force to be reckoned with and it could literally happen overnight if Google plays its cards right.  The company recently announced that it is giving consumers a new, remarkably convenient, powerful choice of payment and is tying this to the merchant’s advertising costs / business profitability.  That’s hot… huge… powerful and, in the end, will likely motivate merchants into action. 

It also announced its ”Content Referral Network“—a move generating much speculation about where Google’s ad business is off to next.

Google Checkout: Consumers
Consider Google Checkout—a tool that allows users to give their charge card and “ship to” details to Google once, never needing to fill out another shop cart form again.  They just click Google Checkout—perhaps using a coupon provided to Google (exclusively of course).  Call it a universal wallet or not, Google Checkout has serious appeal that extends beyond one-click checkout processes such as charge card privacy (share with Google and nobody else yet shop everywhere), e-mail controls (turn on and off email coming from stores within your account) and more.  Control, centralization of transaction history, merchant review ratings, zero liability for un-authorized use of your account… aaah.  Heaven on Earth!

Google Checkout: Store Owners & Advertisers
What retailers are playing so far?  Many large, medium and small brands.  Why will more retailers flock to Google Checkout?  Because Google Checkout (who’s $0.20 + 2% of ticket are less than PayPal’s) will pay every advertiser $10 for every $1 spent on Google advertising buys (AdWords, AdSense). Google will literally offer Google Checkout at no cost to many, if not all of, its advertisers (as a reminder, numbering far more than traditional affiliate networks Linkshare, Commission Junction and Performics combined). 

Google charges forward, according to Chris Sherman of SearchEngineWatch and is “also working with shopping cart providers to integrate Checkout into their systems.”

Sherman points out that

“Google Checkout is simply an extension of technology the company has developed internally for its AdWords, Base, Picasa and other services.”

Checkout + AdWords = Free, More Prominent Ads
But wait… there’s more—significant elevation of a participating advertiser/store owner’s advertisements among Google Checkout-lovin’ consumers.

Google has tightly integrated Checkout with AdWords. Any advertiser offering a Google Checkout option will now see their ads displaying with a Google Checkout “badge” icon next to the ad in search results. This visual cue lets searchers know they have the option of using Google Checkout if they click through and buy from that advertiser.

The Trojan Horse
What’s behind Google Checkout if it’s a break-even for Google?  The answer is clear: Google Checkout must be a trojan horse—a means to move Adwords into CPA-based advertising.  CPC is under heavy fire and not by advertisers or their asleep-at-the-wheel agencies who are still trying to grasp elementary operational pay-per-click search concepts (so that they might define—let alone do battle with—click fraud).  Lawyers are moving and 2 class action lawsuits are one too many for Google (even if they settled and got away with murder!).

Google is likely not planning on converting its cost-per-click (CPC) ad network into a cost-per-acquisition (CPA) model but it sure is planning on offering the option to advertisers and publishers in its AdSense network.

Silencing the Skeptics
Jackson’s critics have been quick to point out that he doesn’t understand fundamental intricacies involved in cost per action advertising and suggesting that Google has a big challenge: getting advertisers to let them into the transaction event itself.  Silence critics!  Google Checkout is the transaction event.  Adoption of Google Checkout is racing forward and shows few signs of slowing down given numerous benefits that store owners/advertisers are having a hard time saying no to.

What about fraud?  I say, what about it!?  “How will Google deal with fraud—a ‘relationship based phenomenon?’” ask the skeptics.  I dunno—how do traditional affiliate (or even worse) CPA networks deal with fraud?  That’s right, in reality they don’t deal with it… to the delight of advertisers who fund it... they pay it some lip service when needed otherwise they ignore it and keep ringing the cash register. 

How Much is Too Much?
Too much data in Google’s control you say?  Perhaps… but there are plenty of sellers/advertisers who don’t give Google all the goods or who are willing to trade off some rather important data (transactions, search and Web site analytics) in return for what amounts to free advertising that is tied directly to transactions—pure performance based advertising. 

I find it ironic that affiliate networks like that owned by Valueclick were largely responsible for building Google and Yahoo Search’s entire paid search business (via affiliates who were willing to experiment with “media/traffic arbitrage") before advertisers would even consider paying for a visitor on a per click basis.  Today, Google turns against such networks as it makes a grab for direct relationships with those who sell on the Web.  At least they’re sharing with affiliates!

LATE ENTRY: This just in…

... this is a dangerous and most brilliant assault on the “cost per click” (CPC) plans of Microsoft, Yahoo and everyone else who is coming to the party… late. This move is about cost-per-action advertising. It is about kicking up the online advertising business a notch!

Om Malik

Although… shame on Om for suggesting that with CPA, “As an advertiser, you have no risk.” Not true but let’s face it most advertisers have shown us for years now that they’re willing to stomach the risk so long as they can get enough of the good with the bad.  Burying head in sand never hurts.  So does that make Om’s statement true?  If an advertiser gets screwed by an adware affiliate and nobody knows does it does the advertiser really get screwed?