Will CPE (Cost Per Engagement) advertising ever take off?
I doubt it – the reason is that it’s targeting metrics at the kind of marketers that don’t care too much about metrics.
Broadly speaking, there’s two kind of marketers in the world – a ton could be written about this, so I’ll just provide some sweeping generalizations:
Direct response marketers are companies that are typically very focused on ROI when they buy advertising – often these include companies you’ve never heard of in ecommerce, online dating, financial services, etc., where it’s easy to calculate the value of a customer and they are primarily getting their traffic through paid marketing channels. They like to back everything out to ROI by comparing lifetime value to cost per customer, and if not that, then at least cost-per-action or some similarly concrete metric.
In many cases, these kinds of marketers prefer search marketing, email marketing, telesales, and other things where it’s easy to quantify what’s going on – they stay away from Super Bowl ads though. They prefer CPA and CPC versus CPM or sponsorships.
Brand marketers are companies you’ve heard of and have seen a lot of advertising for – they are typically targeting a large consumer base, they want to position their products differently relative to their competition and don’t have great ways to quantify the value of a customer. For example, Coca-Cola doesn’t know the LTV of a customer nor what the cost-per-customer looks like for a billboard ad they’ve bought.
For these guys, they are used to hiring big ad agencies to help them advertise on billboards, television, the front page of Yahoo, etc. They may buy search marketing, but have different goals than ROI. (For example, they may just want the top ad, and don’t care too much about ROI)
Why CPE is a weird metric for both DR and brands
The reason why cost-per-engagement is a weird metric is that ROI-focused marketers (that is, direct response marketers), don’t care about “engagement.” They want to know if people are going to buy, and if their media spend is going to be profitable.
As a result, the “E” part of CPE is really only a part that brands care about. And yet, they don’t care that much about CPE because they aren’t focused on the cost of the campaign as the #1 priority. Instead, it’s more important where the ads are being placed, how strong the ad creative is being used, etc.
One scenario to demonstrate this: If they could buy the front page of YouTube, even if that had a higher CPE, a brand advertiser would be happier with that than being shown in random footers of YouTube (the “remnant”) even at a lower CPE. They are looking to establish their brand, not optimize their spend.
What will be prevalent instead?
I think even with the advent of lots of ad opportunities on social sites, the dominate business model will still be CPM/sponsorships for brand advertisers, and CPC/CPA for direct response. Basically, nothing much will change.
If it turns out that CPE correlates to CPA/CPC, then DR marketers will end up liking it.
Also, CPE might turn into a secondary metric that you use alongside really strong placement of ads- maybe as a way to establish a bonus or upside on the campaign, but I don’t think it’ll ever happen that the dominant form of advertising on the web will be that ad agencies will put in a CPE “bid” into self-serve systems :)
I answered this question on Quora – more great answers over there.
