No Comments Written by Anders on April 21, 2008 – 2:04 am

Google first became popular and eventually gained widespread acceptance for two reasons: its search service delivers what it promises, and it’s free. But Google, like any business, couldn’t give away its services for free indefinitely.

Rather than charging a fixed fee for conducting searches, however, Google made a fortune by coming up with an innovative advertising system called AdWords. AdWords takes advantage of Google’s search technology for delivering context sensitive ads: ads that match the item that someone is searching for.

AdWords enables Google to convert its search service to a revenue-generating system, while at the same time giving anyone the opportunity to set their own fee for displaying the ads. The cost-per-click payment system used by Google has largely supplanted the old-fashioned banner advertising system in which Web publishers displayed fixed ads on their pages and were paid based on the number of times those ads are viewed.

Understanding AdWords

AdWords is the program that comes up with context sensitive advertisements that appear just above and to the right of search results on Google. It gives everyone from lone individuals to big corporations the chance to compete in a level playing field for the same valuable advertising space. Because Google is the most popular search service around, and because millions of people conduct searches on Google every day, its search results pages are viewed by many. And if you can create an ad that will offer products or services that are similar to, if not identical to, what they’re already searching for, it’s worth paying for those ads.

The AdWords advertisers fall into two general categories:

• Online retailers. Lots of stores sell shoes on the Web, and these store owners want to drive customers looking for shoes to their Web sites. When you’re looking for shoes, for instance, you’ll see plenty of AdWords ads for Zappos .com, an online shoe store.
• Affiliate advertisers. An affiliate is someone who places an ad on behalf of an advertiser. The affiliate promotes the advertiser’s products and services and steers potential customers to the advertiser’s Web site; the affiliate pays a fee every time someone clicks on an AdWords ad. But the affiliate earns a far larger fee if one of the shoppers ends up making a purchase or performing a specific action, such as registering for the site or submitting information.

Affiliate advertising is a multifaceted subject that could easily require a book of its own. But it’s something you can pursue through Google. Often, Internet-based companies like the job search site Monster.com and the bookstore Amazon.com run their own affiliate programs. You sign up with them, you place an ad on your Web site, and you earn a fee if someone registers, places an ad, or makes a purchase (the criteria depends on the advertiser). But the number of clickthroughs (clicks on your ad that take a visitor to the advertiser’s Web site) your ad receives depends on the visibility of your Web page.

The more visitors you receive, the more ad revenue you’ll generate. If you place your affiliate ad on one of Google’s search results pages, you’ll probably receive a lot more attention than you would otherwise. You can use AdWords, then, as either an affiliate or as an online merchant advertising your own business. Affiliate advertising is an activity that can be very lucrative, and one that has made a few enterprising individuals rich.

Suppose you’ve taken steps such as those described in other posts and optimized your Web site so it will receive prominent placement in Google’s search results as well as services like Yahoo! and MSN Search. Should you take the next step and pay for ads that appear alongside the natural search results? It’s not an either-or thing: competition is becoming so fierce among e-commerce Web sites that most businesspeople optimize their sites for search placement and take out AdWords ads as well. Of course, you could also consider one of the other tried-and-true advertising options like these:

Paying for directory placement. Yahoo!, one of the most popular directories to the Internet, now charges commercial entities several hundred dollars to list themselves in the directory at http://www.yahoo.com. But simply being included in the directory can get you more attention. (Google, of course, has its own directory at dir.google.com. You don’t have to pay to add your URL to Google’s directory;)

Banner ads. A banner ad is an image, usually rectangular in shape, that is displayed on someone else’s Web page. You are the advertiser, and you pay the publisher of the site a fee for showing your ad. The fee varies depending on the publisher: you might pay on a CPM (cost per 1000 impressions) basis. Or you might pay only when someone performs a desired action, such as clicking on the ad to go to your Web site, or making a purchase after clicking on the ad.

The problem with directory searches is that your site is listed alongside many others that offer similar items or services. The problem with banner ads is that they aren’t always targeted: you can’t always control what Web surfers are looking for when they come to a site.

They may or may not be interested in the substance of your ad. And if you agree to a CPM payment structure, you are at the mercy of the publisher: if the publisher attracts many thousands of visitors due to a special promotion, it will hopefully end up with more visits for you, but whether you get visits or not, you still pay for that ad. One of the big advantages of AdWords is that you are in control. You can begin or end ad campaigns at any time. Not only that, but you can determine how much you will pay every time someone clicks on your ads: you can bid as little as a penny a click or as much as $10.

It’s not a good idea to bid as little as a penny, however, because you are competing with anyone else who has already set a price-per-click level on the same keywords. If you bid a penny and someone else has bid .10, that person will get higher ad placement in a set of search results for your specified keywords. The challenge is to bid as low as possible while still ensuring placement near the top of the page; bid too high, and you’ll spend too much on your ads. Bid too low, and few people will ever see your ad. And the success of your ad also depends in large measure on how you write it.

You have an agonizingly small space in which to create your ad. Count the number of characters in one of the ads that appear on a set of Google search results, and you get the idea: the typical ad consists of only two lines of 30 to 35 characters each.