The CMO of AzoogleAds examines where online budgets are being spent in the U.K. and debates if brands are actually maximising their performances.

Any online marketing organisation that has done business in North America and  the U.K. probably realises that online marketing has advanced faster in the U.K. One study published by the IAB shows that online advertising has a higher percentage of overall advertising spend in the U.K. -- about 11 per cent of total marketing budgets -- than the U.S. (about 7 to 8 per cent). In 2006 alone, online ad spending growth in the U.K. was up 41 per cent from the previous year (versus 35 per cent in the U.S.). From a practical point of view, the U.K. market also has more stringent marketing compliance safeguards. A subset of this is that laws guarding privacy, spam and lead-generation seem to be more robust and comprehensive. But where are U.K.-based advertisers online marketing budgets going? Where should they be spending?

As we continue to cross boundaries and ad networks that have traditionally been U.S.-based expand into the global marketplace, we've been seeing a key difference in primary ad spend. In the U.S., performance marketing, specifically CPC and CPA pricing models, continue to outpace the rest of the sector, namely CPM. In fact, in the first half of 2007, performance marketing exceeded CPM for the first time as the dominant pricing model in the U.S.

This showcases the fact that the CPA model is where the most opportunity lies in the U.K. Our research indicates CPA adoption in the U.K. is lagging behind the US -- advertisers' budgets have yet to really shift to CPA. Likewise, web publishers haven't responded by embracing this model to the extent that we have in the U.S. How will the change begin? We've seen increased partnerships, such as the resent partnering of U.S. performance marketing provider AzoogleAds and 77Agency, a London-based SEM management firm. Deals such as this will set up wider adoption of the CPA model across Europe, as opposed to the development new ad networks.

The reason for wider adoption comes down to the fundamental benefits of the CPA model. An advertiser under the CPA model does not pay an ad network or web publisher unless a desired action is completed. This 'action' can technically be whatever the advertiser wants: a sale on their website, a new lead, email subscriber, an online subscription purchase, etc.

For example, advertiser Z wants qualified subscribers to its monthly newsletter and decides to work with ad network Y in this capacity. Advertiser Z has calculated that they are willing to pay $5 to acquire new subscribers (they will have calculated that at a $5 dollar payout, they meet their own profit margins after expected customer retention and/or conversion and their other costs).

Ad network Y then markets advertiser Z's 'offer' across their publisher network and begins the process of pursuing new email subscribers on behalf of advertiser Z. Ad network Y knows (inherent in the model) that 1) they will not get paid unless they drive email newsletter signups and 2) that the quality of these signups must be commensurate with advertiser Z's expectations or meet their minimum requirements (i.e., there cannot be a drop-off of subscriber quality).

From an advertiser's point of view, it is that simple. At this point you might be asking, 'Why wouldn't CPA be widely adopted? What are the factors that have prohibited broader adoption of this pricing model in the past?'

Essentially, there are two factors that have held the CPA model back vis-à-vis CPM. These have largely been overcome in recent months (as one can tell by looking at the growth trends in the CPA sector in general). First, not all advertisers want a specific action delivered. They can accomplish their advertising goals by marketing on a CPM basis, or so the story has gone. CPM most closely resembles a billboard ad in Times Square -- it's 'sexier'. Second, there were practical issues that have pointed to CPM. That pricing model was first on the scene and so a lot of marketers and/or their clients, CEOs, etc., can grasp what's easier -- paying for potential eyeballs. CPM is also simple to track, it's the 'no-tech' marketing model since you're only tracking impressions. There is no need to track clicks or to pixel any confirmation pages. Finally, it's what most ad agencies, representing a certain segment of advertisers, know best -- transferring a very offline mentality (see billboard example above) to the online world.

Now, there is a big shift happening in terms of online advertisers' goals. Very few, if any, have zero performance goals considering that even a click on an ad constitutes some form of action or performance. Also, branded advertisers are beginning to see the power of branding inherent in an action or a qualified sale: establishing customer relationships, exposing more customers to the brand itself in a tangible way, creating opportunity for word-of-mouth marketing, to name a few. If you're willing to buy web inventory on a CPM basis to get scale, reach and ad placement, wouldn't you take the same scale, reach and ad placement while gaining some measure of performance (and customers)? Most likely, yes. Also, as time has gone on, the CPA model has become easier for advertisers to understand and to implement (not all that tech intensive), and agencies are embracing CPA more on behalf of their clients.

The CPA model represents very clear opportunity specifically for U.K.-based advertisers. The benefits inherent in the model represent a great way for advertisers to mitigate their customer acquisition risk, work with ad networks to scale the number of qualified consumers, get their brand in front of the internet audience safely and responsibly and to ensure that they are on the forefront of a positive trend that will happen across the world as it has in the U.S.

Michael Sprouse is chief marketing officer, AzoogleAds.