It certainly didn’t make sense to me that ads for refinance running contextually outperformed the lead based ads. As an AdSense publisher, he has two factors working against him. The first is the revenue share. He is paid a percentage of what Google receives, at best 50%. The second factor that should hinder contextual’s performance is that ultimately the vast majority of refinance advertisers base their click spend with Google on leads. In other words, if they pay $5 a click to Google, they base that bid off the percentage of clicks that turn into a lead. If their average lead price climbs too high, they will lower the price per click. A publisher being paid on a lead basis means receiving the full allowable for a lead (as opposed to a blended click price based on an average desired cost per lead target). Or does mean that?

In trying to understand how a publisher could make less money on a per lead basis than being paid on a per click basis (and just a fraction of the total click revenue), three hypotheses come to mind.

1. Traffic Quality Issues – one thing about the lead ecosystem is that when executed properly, it allows buyers to place an accurate value of traffic. How to do this properly gets into a more complex issue, but assuming that as a buyer whether through an aggregator or through direct buys, you view all leads as granularly as possible. You then measure the conversion rate of the leads by source to figure out what you want to pay for that source. It was possible that these sites run by the publisher did not convert well and as a result, he was paid less per lead. With Google, advertisers cannot as easily determine value by lead source.

2. Google Effect – another possible hypothesis deals with what some have called the Google effect.  I recall talking to a lead buyer that spent on Google but looked to increase the number of sources of traffic. When asked what he would pay for a lead (assuming the desired lead to sale conversion rate), he answered $35. When asked what he effectively pays per lead with Google, the answer came in at $75 / lead. Most people don’t have such severe examples, but many advertisers pay more than they want for traffic from Google, not because it converts better, but because they don’t feel they have a choice. They want the traffic.

3. Brand Value – Given that many of the refinance advertisers showing up on this publishers site don’t lead to aggregator’s pages but to sites run by big banks, a third hypothesis for how he receives greater payment via Google contextual ads than lead directly deals with the not always easy to quantify value of the brand. My first reaction to hearing of his making more was to jump to the inefficiency of the Google Effect, but it is possible too that the big banks, unlike the more typical lead buyer, don’t have a performance goal in mind. Or, if they do have a performance goal, they have increased their allowable because of some perceived brand value. Then again, the true skeptic would probably just mention that big brands tend to overpay, and they work with search agencies paid on the spend, so it’s in that parties best interest to play up non-measurable factors such as brand.