In order to show how the concept of "Performance-Based Pricing" has developed in the Search Marketing Industry, you should see how Paid Placement, which is "Pay For Some Kind of Performance" (Pay Per Click, Action, Lead or Sale) has grown since about the year 2000. Online search advertisers want you to "CLICK HERE", but some want to "dance" (click on image above to see them dance) by having you take some kind of ACTION that results in a Lead or a Sale.
In my 12/12/05 post I promised to show how Benson P. Shapiro's "Is Performance-Based Pricing the Right Price for You? relates to SEO "Pay for Some Kind of Performance" along the lines of Paid Placement. This is true, because the online advertising industry first resisted any kind of "Pay For Actions" or "CPA" approach. This article back in 3/13/01 entitled "Pay For Performance Still Rules" says: "Cost per acquisition is certainly less common, but it's getting there." The author ends by saying: "The business is just not ready for this on a large scale. But we better watch it, because we live in a capitalist, free-market society, and someone is going provide clients with what they want."
My opinion is that in 2005 the customer and client want even more POWER in determining how they pay their vendors and consultants, more RECIPROCITY in having open, honest, upfront and good collaborative communication, more PRECISION in the type of results they're paying for, and more ROI RELEVANCE in what they pay for. These are the principles of Yankelovich Partner's "Concurrence Marketing" that I believe can, and should, be applied to clients and customers as well as consumers. That said, I still agree with Mr. Shapiro that "Performance-Based Pricing" is not right in every situation. This article by Catherine Seda gives some good parameters for deciding if "Pay-for-Performance online marketing is right for your business".
Mr. Shapiro says in his featured work that: "Other industries as diverse as consulting, trucking, and heavy industrial services are seeing the same trend." He was talking about "Performance-Based Pricing" that is now even being utilized by the government in Medicare payments to health care services. What is so interesting about Mr. Shapiro's featured work is that it says: "PERFORMANCE-BASED PRICING IS INSURANCE. IT INSURES THAT THE SELLER DOES NOT UNDERCHARGE THE BUYER. When the final performance of the service or product is in doubt, the performance-based arrangement guarantees that as the seller provides more, it is paid more. Significantly, the buyer also receives insurance that it will not overpay at both the institutional and the individual level. No person or organization wants to pay more for a product or service than it is worth."
Maybe that is why from 3/31/01 to 9/13/05 there is now an article entitled "The Rise of CPA Networks" which now says: "The general perception is CPA ad networks only cater to less savory advertisers. The truth is big household brands make up 30 to 45 percent of all CPA advertising." This is what attracts online advertising companies like DoubleClick to have separate divisions like Performics, "the performance-based marketing division of DoubleClick,.." In fact, less than two years ago Snap.com (a newer search engine started by Bill Gross who started Overture) came up with their Snap.com Ad System that incorporates Cost-Per-Click (CPC), Fixed-Cost-Per-Action (like Cost Per Action or acquisition), and Variable-Cost-Per-Action (like Pay Per Sale). This USA Today article of 7/19/05 says: "Gross pioneered this "pay-per-click" approach at GoTo.com, which later changed its name to Overture Services before Yahoo bought it for $1.7 billion in 2003." The title of that article "Snap.com, 'cost-per-action,' coming after Google" is due to Snap.com's parent company recently getting 10 Million in venture capital.
My point in all this is that while there is resistance to "SEO Performance-Based Pricing" right now, increasing pressure from clients, along with an increasingly competitive environment in SEO, should at least induce an "explore and debate" the concept attitude vs. the current prevalent "brick wall" attitude. This is conveyed in many articles like Jill Whalen's "Pay-for-Performance SEO" in which she says "Run like the wind!" about SEO Performance-Based Pricing. However, with the circumstances in that article, I agree with her for that specific situation. In Stoney deGeyter's article "Pay for Performance Pricing Models for S.E.O. he is more open minded, but still says: "Personally, I would not price SEO services based on performance unless I was given 100% control over the client's website,.." I don't know what he means by "100% control", but SEO's do need to have their recommended changes implemented on the client's web site (or they have authority to do it themselves), or else, it is a "lose-lose" situation for SEO buyer and seller.
In my next post I'll look at the traditional advertising agency business and how it relates to "SEO Performance-Based Pricing = Pay For Some Kind of Performance".
Animated image courtesy of www.artie.com.
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