ailon's DevBlog: Development related stuff in my life

CPA, CPC, CPI… it’s all a big lie

8/21/2013 5:29:00 PM

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It’s an advertiser driven market out there. Meaning that there’s more ad space on the web and in mobile than there are ads to fill it. And what were advertisers always dreaming of? They only want to pay for results. So when someone advertises a product they want to pay only when someone buys it. If you have an app, you only want to pay for the downloads. A service? Pay for subscribers. And so on and so forth. Worst case acceptable scenario – pay for clicks. At least they’ve acted on my ad! We finally have a way to track these things. I’d argue that we tend to give that tracking thing too much credit, but that’s another story.

But if you look at the other side of the fence, publishers, ad networks, developers never think in CPC or CPI. They always think in CPM. Even if they have to agree to sell you on the CPI basis, they will always measure their own results in effective CPM. And even if they agree to your CPI rate on the first run, they will look at what eCPM it brings them and react accordingly.

What does it mean for you as an advertiser? Any reasonably smart bidding-based system (AdWords, Facebook, etc., etc.) doesn’t rank your campaign ads based on your CPC bid, but rather on the resulting eCPM. And “human-based” systems are pretty much the same. So, if your CPA campaign results in poor eCPM, they will either raise your rates or just refuse to continue dealing with you (in case you are beyond saving threshold). On the other hand, if the publisher is happy, it most likely means that you are overpaying for the service. Even when they are desperate and don’t kick you out despite poor performance of your campaign, it’s likely you’d get an even better rate on the CPM basis.

So what I’m getting at? Any product has a minimum reasonable price. In this case the product is ad space and the price is measured in CPM whether you want it or not. So the only way for you to control the destiny and the price of your campaign is to buy it on the CPM basis too. In this case it will be you who evaluates the effectiveness of an advertising platform. Yes, it may cost you more for the test run, but after that you know your metrics. You may find out that you are paying a lower CPA than you were planning too. And even if results aren’t satisfactory, you can negotiate better rate in terms that are clear to the other side. Or you can just decide that this is not the right platform for you and focus your precious time and energy on those that work.

In any case, buying on the CPM basis you control your advertising, buying on the CPA you only control your advertising expenses.

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Newsflash: You can’t track everything

1/17/2012 8:28:32 PM

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Photo by Konstantinos Papakonstantinou

Back in the pre-internet days advertisers could hardly track anything and they had to calculate RoI on their offline ad campaigns based on some assumptions, approximations or secondary data. They were aware that their data wasn’t accurate so they understood that all of their conclusions based on the scarce data aren’t facts, but just their best educated guesses.

These days on the internet we have referrers, cookies and other stuff that lets us track the whole path of our users from our ad somewhere, to their first visit, to the purchase of our product. Sure, quite often we can see that customer A came from site B, looked through our site, returned to it in a few days and made a purchase. Hooray!

Based on this data we start to believe that we can track everything and now we can measure RoI of our campaigns by simply comparing money we’ve spent on it and amount it generated in sales based on data provided by our tracking/analytics software. This type of measuring success is prevalent in blogs, podcasts and books on entrepreneurship these days and we are used to looking at it as the absolute truth. Because we have the data to prove it!

Unfortunately we can only track something and not everything.

Let me give you a couple of examples.

We are tracking the sales funnels for amCharts. We get pretty good data for quite a large portion of sales and can tell where they have originated. That said the most popular source of sales is Google search for “amcharts”. Yes, “amcharts”. Not just “charts” or any other generic term, but our exact name. This means that the majority of sales come from people who already knew something about amCharts. This could be someone who has heard about amCharts from a friend. Or someone who has clicked on our ad while doing chart library research at home on his iPad and then came back via Google search from his computer at work the next day. Or a CEO (or some other guy with a credit card) who has been told by his developer to buy amCharts. All of these sales could have initially originated from a campaign that could’ve been declared a complete waste of money based on the tracking data we have.

Another example with a different angle. One of the best music albums I’ve bought last year was Velociraptor! by Kasabian. Let me try to track the chain of events that led me to the purchase. I’ve heard about the band and some of their songs before, but have never bought any of their music. The catalyst of the purchase was a remix of the song “Days Are Forgotten” by DJ Z-trip. I’ve heard it on Z-Trip’s site, then went to the Zune store on my PC a couple of days or even months later and bought the album. I’m pretty sure there’s no trace of this chain anywhere. So Kasabian’s record label (or whoever cares) has no idea that money spent on commissioning Z-Trip and LL Cool J to do the remix resulted in the sale. But lets go deeper. Why did I go to Z-Trip’s site in the first place? Because he was DJing at the party of MIX11 conference I’ve attended last year. So I guess part of the referral credits should go to Microsoft? But why did I pay attention to the name of the DJ at MIX11 and have no idea who was DJing at MIX10? Because I already knew who Z-Trip was, even though I’ve completely forgotten by that time. Back in the early 2000s I’ve listened to Linkin Park a lot and their lead-vocalist did vocals on one of the songs on Z-Trip’s album. And I don’t know who was responsible for turning me onto Linkin Park.

As you can see human mind can trace some events back along a chain of events that none of the tracking software can pick up. In the above mentioned case it even failed at the very first step which would definitely be of interest for a music bands management.

The bottom line is that the fact that we can track something gives us an illusion that we can track everything, but the next couple of times when you buy something online try to analyze if the seller of the product can trace your purchase back to the original source of your interest in this product. And when you notice that they can’t, think about your own campaigns and how you believe you know the RoI on them.

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