Online ads are predominantly based on three payment models:
- CPM: Cost per mille (thousand). Pays a flat rate for every 1,000 times the ad is shown (an impression), regardless of whether anyone notices or clicks on it. Rates vary, but generally stay between $1 and $10. Advertisers usually require placement above a certain page height to ensure that most visitors see the ads.
- CPC: Cost per click. Pays each time a viewer clicks an ad. Rates are all over the place, from $0.02 to $30 depending on the context and ad subject. Google AdSense is primarily a CPC network.
- CPA: Cost per action. Pays only if a viewer clicks the ad and performs a set action on the advertiser's site, such as buying something or creating an account. Most referral and affiliate systems are CPA, including Amazon affiliate links.
Most large sites use CPM ads because the advertisers need them
(not the opposite), and CPM terms favor publishers: they have more stable incomes, and know how much each visitor earns them. They sell impressions to advertisers with no guarantees except approximate demographics. Almost every visit to the publisher's site will count as an impression. The burden is entirely on the advertisers to create effective campaigns and products.
- CPM risk to publisher: none
- CPM risk to advertiser: all
It's easy to sell CPM ads for Newegg on HardOCP because HardOCP is a reputable site that probably won't cheat to inflate its pageviews, and Newegg can be reasonably sure that a large percentage of their ad's purchased pageviews will be seen by people likely to buy Newegg's products. Therefore, Newegg is willing to take the risk on a CPM campaign. This only works when publishers can be trusted and audited by humans, which limits the scale to smaller ad networks and larger publishers.
CPC ads such as Google AdSense are more useful in a market in which the publishers can't be trusted to be truthful or provide a consistent demographic. Excluding clickfraud, advertisers don't pay for "wasted" impressions, so it's a great deal for them - there's a reasonable chance that each time they pay, a possible customer has found their site. It's not a guarantee, but it's a lot better than a CPM ad impression.
If the ad isn't very interesting, or if it's poorly targeted (a Newegg ad being shown on a cat-sweater knitting site), the advertiser just gets a free impression and nobody clicks the ad. This denies the publisher of revenue: they fulfilled their end of the agreement (showing these ads to their audience), but got nothing for it.
- CPC risk to publisher: most
- CPC risk to advertiser: some
The advantage is that almost anyone can run CPC ads almost anywhere - because the publisher takes most of the risk, advertisers are willing to let almost anyone show their ads without a formal human-managed publisher review. This is why even an awful blog with 3 readers can show Google ads.
A CPA ad is an incredibly good deal for advertisers: if an ad campaign doesn't work, or is poorly targeted, they pay nothing. They only get money if they make
money, effectively pushing the entire risk on the publisher who eats their server and content costs regardless. A publisher can show a CPA ad to 100,000 people and still get no money, even if 1,000 people clicked the ad and visited the advertiser's site but didn't buy anything.
- CPA risk to publisher: all
- CPA risk to advertiser: none
While CPA ads put the entire risk on the publisher, the ad network and advertiser are most responsible for the success of the ad. Together, they create the products and advertisements and choose which campaigns to show on the publisher's site.
It's a terrible deal for publishers. Why take all of the risk?
CPA networks are infamously liberal when accepting applicants, usually willing to pay anyone who can generate sales. There's almost zero risk of fraud, and advertisers don't care where their customers come from, as long as they're buying something.
It's no wonder that a bunch of CPA networks are sprouting up, including one by Text-Link-Ads and even a beta from Google. Advertisers love them, and exaggerate earning-potential claims to get publishers to sign up.
Publishers: Have some common sense. Resist their hype. The only valid reason to publish for a CPA network is if you have no other options - in which case you might be better off going into realty.