Microsoft To Offer CPA Pricing Model To Advertisers?

In a press release today, Microsoft announced plans to offer advertisers a Cost Per Action (CPA) pricing model in addition to the more traditional Pay Per Click (PPC) pricing model.  From the release:

This offering is part of a larger initiative to offer cash back to shoppers who use Live Search to purchase goods, which I will cover in the next post.

Does this pricing model make sense for the search engines?  I do not believe that it does, in fact, a major search engine getting into the CPA game is a rather dangerous because it jeopardizes the entire search ecosystem.

In other words, if the CPA model catches any traction on a larger scale, we will witness a race to the bottom as advertisers squeeze their profit margins.  As advertisers fight for the top spots in the results pages, profit margins shrink as the search engines take a greater share of that profit from advertisers sales.

We should also recognize that the search engines have more at risk here too; while the potential exists to make more money on a CPA model, there is also the chance that the user does not complete a sale, and the search engines make nothing.

The PPC price model already works for everyone, why change it?  It's extraordinary profitable for the search engines and it allows the advertisers to decide what they feel comfortable with paying without divulging any more information to the search engines than they have to.

Don't get me wrong -- I think the CPA model is great; we've built our business on the CPA / Cost Per Lead (CPL) business model, and it works wonderfully in an advertiser / publisher relationship.  Search engines getting into this space would be a very regrettable, slippery slope.

Microsoft is really grasping at straws to become relevant in the search space.  In order to attract more users, Microsoft would be much better off focusing on the quality of its search results than increasing offerings to advertisers.