Cost per Click

Cost per click (CPC) is one pricing model in the online advertising world. In this case the advertiser pre-negotiates a fee it will pay upon each click of its ads. This is a lucrative pricing model for Websites that have a strong track record in delivering an advertiser's target customer. CPC allows Websites to better predict its advertising revenue compared to cost per action (CPA), where a site only receives revenue if a user performs a certain action (e.g., makes a purchase, opens an account, etc.). Other common online advertising pricing models include cost per thousand (advertisers pay strictly for impressions), barter (exchange of ad space for something of equal value—desirable product or service), sponsorship (advertiser pays a fixed fee for space on [Page 319]a Website for a specified term), and a hybrid model that combines at least two of the aforementioned advertising pricing models.

Similar to advertising rates charged in traditional media (e.g., television, radio, print), two main components will determine the price charged to reach target consumers: ad supply relative to demand, and the success in delivering coveted consumers. For example, if a site gets 1,000 impressions and has a 2 percent CTR, it will generate 20 click-throughs. Assuming a $10 CPM (cost per thousand impressions), then the cost per click is 50 cents. CPC is often used synonymously with the term pay per click (PPC). Generally, PPC indicates payment based on click-throughs, while CPC usually suggests measurement of cost on a per click basis for advertising contracts. Many sports related businesses (Web or offline) engage the PPC model.

Content driven sites such as http://ESPN.com use PPC as a way to maximize revenue on content readership or viewership. The more compelling the content (news stories, sports highlights), the more active the site is in attracting and keeping target consumers. These highly engaged consumers are very valuable to advertisers who are willing to spend top dollar to get their ads in front of them. Advertisers are the full range of product and services providers (e.g., AllState insurance, Hampton Inn hotels), many of which are similar to advertisers that support television programming on the ESPN family of networks.

These ads may incorporate text, image, and rich video (they may also be the same ads shown on television). The critical issue with CPC advertising is contextual relevance. While it is not required that CPC ads are contextually relevant, totally unrelated ads may look odd and out of place on a site that is context incongruent. Many of these ads are selected and placed on Websites though ad networks such as Google AdSense. Whether one has a business that connects with fans via content, such as http://ESPN.com written and video modes, or is using sports properties such as http://PGATour.com to connect their brand (e.g., Pepsi) with fans, CPC advertising may be part of the advertising mix.