Cost-Per-Click and Cost-Per-Action Startups Will Weather the Storm

Lyal Avery of Vancouver’s OutCome3 is a Techvibes Guest Contributor.

With capital access and first-round raises frozen solid, it’s tough to be a startup. On October 9th, Sequoia Capital gathered their portfolio companies, stating that now is the time to slow the startup burn and do everything possible to stay afloat – a far cry from the chants of “grow! grow! grow!” heard a year ago. However, all is not lost, as a new breed of startup moves to excel: businesses based on cost-per-click (CPC) or cost-per-action (CPA) advertising.

Cost-per-click and cost-per-action advertising lets companies create immediate revenue streams, free from account receivables. When revenue flows from day one, it’s easier for startups to adapt to challenges. Naysayers cry that online advertising budgets are being slashed left and right, but Google’s recent earnings show that CPC and CPA are still thriving. (However, second-tier providers aren’t doing as well, which may be due to a need for consolidation in market.) The answer is simple; with shrinking advertising budgets, marketers are moving away from ‘spray-and-pray’ advertising to venues with measurable returns, such as CPC and CPA. Time for that sweet, sweet radio money to start flowing in our direction. And this is far from the banner glut of the early 2000’s; these two types of advertising are based on real sales.

Suite101.com, a startup monetized through cost-per-click advertising, is a great example. Peter Berger, President of Suite101.com, said, “Overall monetization per impression is down a few percent […] but to a much lesser degree to CPC.” Berger continues, stating that overall revenues were increasing due to growth in traffic.

When compared with most startups in these times, Suite101.com is accomplishing something incredible; revenue growth! While consumer trends may push online purchases down, increased budgets for CPC and CPA advertising could create higher margins for advertisers fighting for the remaining sales. Vigilant startups are poised to reap great rewards, so long as they build business models that funnel remaining interested users into sales.