• by John Motavalli , Columnist, March 15, 2016

Forget CPMs and CPCs, what about CPE, CPA or CPI? Are new forms of ad pricing gaining ground in programmatic? Maybe.

The Cost Per Engagement (CPE) concept is catching on, according to Omer Kaplan, a co-founder at ironSource, particularly with gaming clients. CPE is based on the idea that only more committed users and impressions are really worth paying for, such as users who reach a certain level in a game or those who commit to a free trial offer. With CPE bidding, advertisers only have to pay for an impression if it involves a particular form of “engagement,” not just a click (CPC).

“We’re seeing a lot of gaming apps buy on a CPE basis, along with a high concentration of mcommerce apps,” Kaplan says. “This is likely due to the fact that these apps have highly developed, complex in-app economies or engagement flows, which work well with a CPE-based campaign.”

CPE pricing is fairly complex and varies according to the particular form of engagement or offer, including registrations. Kaplan puts it this way: “If it's a registration, for example, then it's priced according to the ratio of an install to registration. If an advertiser would normally pay a $1 CPI (Cost Per Install) and only 25% of users register, the CPE would be $4. More advanced marketers set the value of the event based on value prediction models, (i.e. if a user gets to level 5, they are likely to spend on average $5, and therefore the CPE can be up to $5). Typically, the ‘deeper’ into the engagement funnel you go, (i.e. setting the engagement at 7-days retention as opposed to 3, or level 5 as opposed to level 1), the higher the CPE will be.”

Another programmatic executive gives the example of a car company that might use CPE for registrations. “There are some people who have floated that concept. It’s a newer thing,” says this insider. 

Another source cites CPA, or Cost Per Acquisition, which would call for a higher form of engagement. Wikipedia defines CPA as “a method of advertising whereby the advertiser only pays when an advert delivers an acquisition. Moreover, CPA is very effective for an advertiser to pay because they only pay when the advertising has met its purpose.”

According to Andrew Chen of Uber, who wrote this for his blog, “Even with the advent of lots of ad opportunities on social sites, the dominant 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.”

And ironSource’s Kaplan cautions: “Currently, CPE is relatively rare in programmatic, likely due to the conflict between the quality/rarity of the users CPE brings in, and the scale promised by programmatic. Having said this, if done right with proper audience segmentation, programmatic could be the ideal channel for CPE campaigns.”