The confidence of Pay Per Click advertisers has been greatly shaken this year. Search engine and web publishers' Cost Per Click (CPC) revenues have fallen sharply.A recent study by Outsell of over 400 US online advertisers estimated that Internet advertisers paid $800 million in fraudulent clicks last year prompting 27% of advertisers to stop or reduce spending on click advertising.A further 10% are planning to do so. Advertisers felt that 14.6% of all clicks are fraudulent.

So how did this come about? The traditional PPC model enables advertisers to bid on keywords or phrases that users submit into search engines and then pay the web publisher for each click on the relevant advertisement.The fee is then split between the search engine and the third-party website publisher.

But what if users repeatedly click on an advertisement with no intention of buying the product? It can happen for the best and worst of reasons. Some users of charity sites, when told that their charity can gain extra revenue if they click on the ads, do so with the best of intentions - although it's a bit unfair if they think about it. More sinister reasons lie behind the practice of companies clicking on competitors' ads to bump up the cost; or fraudulent publishers clicking on ads on their own site to increase their revenue. Although search engines can detect repeated clicks from the same IP address, the practice still appears to be widespread. A recent action resulted in web publishers being awarded $90 million because Google did not take sufficient measures to eradicate click fraud through their AdWords scheme.This settlement has been followed most recently by the filing of a further lawsuit from the owner of two websites in the US.

So if CPC advertising is in decline, what lies ahead?
A fairer type of online advertising known as 'cost per action' - CPA - has evolved. It requires advertisers to pay only when a specific action has been completed following a click on an ad.This action might be to purchase a product, to request some information or to complete a form.

CPA provides a more direct and predictable return on advertising spend. Plus advertising costs can not exceed revenue, as it will always be a percentage of the value of real orders. It could be argued that CPA is less fair on the search engine or web publisher. Revenue can depend on the ad's creative content, the offer on the landing pages and the performance of the website in enabling users to complete the action. If any of these factors are at fault, it's hardly the search engine that's to blame.

So with CPA, it's likely that search engines - able to track conversions closely - are most likely to offer this scheme in the short term to only highly performing advertisers.

Google Pilot
Google recently launched a pilot CPA advertising scheme for their AdSense programme in which web publishers earn revenue by hosting Google advertisements on their websites. Participation in the pilot scheme is by invitation only for both advertisers and web publishers.Web publishers receive additional payments when visitors complete desired actions on an advertiser's site. It's designed not to compete with Google's AdSense system, but to act as a content referral network for it.

Invited publishers will need to add a new specific Content Referral advert area to their site. But they will have a greater choice of ads and can promote specific ads by including text alongside them and recommendations. It's more demanding than CPC advertising, but payouts can be much greater. eBay recently disclosed plans to follow suit. External sites are paid when an advert is clicked on and the related item bought from eBay.

Nothing's New
The CPA model is not really a new concept. Similar marketing schemes have previously been the domain of affiliate players such as ValueClick, whose Commission Junction, has been around some time.Their goal is to build a network of affiliates who through commissions have a financial stake in promoting your site.Yet CPA has seen little interest from search engines. Transactional online marketing in the retail sector has also successfully operated on a commission-based/cost per acquistion model, for example shop.com provides a marketplace for merchants on this basis.

The only way Google will eradicate click fraud is if it completely replaces the AdSense program. Or is CPA just a tool to generate additional revenue? Whatever, the move by Google to a CPA model brings with it a new 'affiliate' role and will substantially shake up the existing market.