Google announced the testing of a new pay-per-action (PPA) advertising service yesterday. So far, Google has primarily sold PPC ads, but the launch of a new PPA service has long been rumored.

PPA reduces click fraud to a minimum, because advertisers only need to pay when the visitors coming through the advertising links actually perform some sort of action (e.g. fill out a form, purchase a product). Therefore, PPA is more profitable and secure for online advertisers. In the long run, advertisers will probably migrate from PPC to PPA. This will result in direct navigation traffic going up in value, as targeted type-in traffic converts better than traffic from search engines or links. After all, Google’s new advertising product will increase the value of quality generic domains, while junk traffic domains will go down in value.

Although Google isn’t doing this yet, it is possible that Google’s system will automatically rotate CPM, PPC and PPA ads at some point in the future to generate the highest revenue possible for publishers and domain owners. Hopefully, this combination of advertising models will then be made available to domain parking programs, making it easier for owners of generic domains to optimize the parking performance of their portfolio.

Google also announced a new text link format for PPA ads which will allow webmasters to place PPA text links within the content of their site:

Text links are hyperlinked brief text descriptions that take on the characteristics of a publisher’s page. Publishers can place them in line with other text to better blend the ad and promote your product.

For example, you might see the following text link embedded in a publisher’s recommendatory text: “Widgets are fun! I encourage all my friends to buy a high-quality widget today.” (Mousing over the link will display “Ads by Google” to identify these as pay-per-action ads).

Though the maximum length of a text link is 90 characters, we’ve found that shorter links perform better because they allow the publisher use the link in more places on her/his site and in different context. The maximum length is 90 characters but less than 5 words is best. Even better, just use your brand name to offer maximum flexibility to the publisher.

Google currently accepts applications for their AdWords and AdSense PPA beta tests:

Beta Test Requirements: At this time, the pay-per-action beta test is only available to advertisers in the United States. In addition, you must already be using conversion tracking or be able to implement conversion tracking code on your website so that we can track your completed actions.

Over the next few weeks, we’ll begin adding advertisers to our beta test.

You can signup for the beta test here.