The Rise and Fall of Cost Per Engagement Advertising

This article explores the concept of Cost Per Engagement (CPE) advertising and why it may not take off as a dominant model.

• The author argues that CPE is a "weird" metric because it targets metrics that different types of advertisers value differently.
• Direct response marketers, focused on Return On Investment (ROI), prioritize metrics like cost-per-action (CPA) and cost-per-click (CPC) that directly translate to sales and profits.
• Brand advertisers, on the other hand, are more concerned with brand awareness and positioning, often opting for traditional channels like television and billboards.

Direct Response Marketers: ROI-Focused

Direct response marketers, known for their data-driven approach, are highly focused on quantifying the value of every advertising dollar spent.

• They prioritize advertising channels where they can measure results, such as search marketing, email marketing, and telesales.
• Direct response marketers seek to understand the lifetime value of a customer (LTV) and measure advertising success against the cost per customer acquired (CPA) or cost-per-action (CPA).
• Their goal is to maximize ROI by ensuring that advertising investments generate a positive return.
• CPE, with its focus on engagement, is less appealing to these marketers, as they prioritize metrics that directly impact sales and profitability.

Brand Marketers: Awareness and Positioning

Brand advertisers are more concerned with building brand awareness, establishing a strong brand identity, and differentiating themselves from competitors.

• They often target large consumer bases, seeking to create an emotional connection with their brand.
• Traditional advertising channels like television, billboards, and print media are frequently used to reach these broader audiences.
• While they may utilize search advertising, their goals differ from those of direct response marketers. They often seek to dominate search results, rather than solely focusing on ROI.
• Brand advertisers might be less interested in CPE, as they are not as focused on optimizing every advertising dollar for direct conversions.

Why CPE is a Misfit

CPE, as a metric, faces challenges in appealing to both direct response and brand advertisers due to its inherent limitations.

• Direct response marketers, with their emphasis on ROI, see "engagement" as a secondary metric compared to direct sales and profitability.
• Brand advertisers, while valuing brand awareness, may not be as keen on optimizing for engagement costs, as they prioritize the placement and impact of their advertising campaigns.
• The author posits that a high CPE on a prominent platform like the front page of YouTube might be more appealing to a brand advertiser than a low CPE on less prominent placements.

The Future of Advertising

Despite the emergence of CPE, the author believes that traditional advertising models like Cost Per Mille (CPM) and CPC/CPA will continue to dominate the market.

• CPM, based on impressions, will remain relevant for brand advertisers seeking broad reach and brand awareness.
• CPC/CPA will continue to be the preferred model for direct response marketers who prioritize measurable results and ROI.
• The author suggests that CPE might become a secondary metric used alongside other models, possibly as a bonus incentive for successful campaigns.
• However, CPE is unlikely to replace existing models as the primary means of advertising on the web.

Conclusion

While CPE may offer a novel approach to advertising, it faces significant hurdles in gaining widespread adoption.

• Its focus on "engagement" does not align well with the priorities of both direct response and brand advertisers.
• The author suggests that traditional advertising models like CPM and CPC/CPA will continue to dominate the market.
• CPE may find a limited role as a secondary metric or bonus incentive, but it is unlikely to become the dominant model.