Pay per click
Encyclopedia
Pay per click (also called Cost per click) is an Internet advertising
model used to direct traffic to websites, where advertisers pay the publisher (typically a website owner) when the ad is clicked. With search engines, advertisers typically bid on keyword
phrases relevant to their target market
. Content sites commonly charge a fixed price per click rather than use a bidding system. PPC "display" advertisements are shown on web sites with related content that have agreed to show ads. This approach differs from the "pay per impression" methods used in television and newspaper
advertising.
In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, PPC implements the so-called affiliate model, that provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point click-through to the merchant. It is a pay-for-performance model: If an affiliate does not generate sales, it represents no cost to the merchant. Variations include banner exchange, pay-per-click, and revenue sharing programs.
Websites that utilize PPC ads will display an advertisement when a keyword query matches an advertiser's keyword list, or when a content site displays relevant content. Such advertisements are called sponsored links or sponsored ads, and appear adjacent to or above organic results
on search engine results pages, or anywhere a web developer
chooses on a content site.
Among PPC providers, Google AdWords
, Yahoo! Search Marketing
, and Microsoft adCenter
are the three largest network operators, and all three operate under a bid-based model.
The PPC advertising model is open to abuse through click fraud
, although Google
and others have implemented automated systems to guard against abusive clicks by competitors or corrupt web developers.
), and the day and time that they are browsing.
The flat-rate model is particularly common to comparison shopping engines
, which typically publish rate cards. However, these rates are sometimes minimal, and advertisers can pay more for greater visibility. These sites are usually neatly compartmentalized into product or service categories, allowing a high degree of targeting by advertisers. In many cases, the entire core content of these sites is paid ads.
. Each advertiser informs the host of the maximum amount that he or she is willing to pay for a given ad spot (often based on a keyword
), usually using online tools to do so. The auction plays out in an automated fashion every time a visitor triggers the ad spot.
When the ad spot is part of a search engine results page (SERP), the automated auction takes place whenever a search for the keyword that is being bid upon occurs. All bids for the keyword that target the searcher's geo-location, the day and time of the search, etc. are then compared and the winner determined. In situations where there are multiple ad spots, a common occurrence on SERPs, there can be multiple winners whose positions on the page are influenced by the amount each has bid. The ad with the highest bid generally shows up first, though additional factors such as ad quality and relevance can sometimes come into play (see Quality Score
).
In addition to ad spots on SERPs, the major advertising networks allow for contextual ads to be placed on the properties of 3rd-parties with whom they have partnered. These publishers sign up to host ads on behalf of the network. In return, they receive a portion of the ad revenue that the network generates, which can be anywhere from 50% to over 80% of the gross revenue paid by advertisers. These properties are often referred to as a content network and the ads on them as contextual ads because the ad spots are associated with keywords based on the context of the page on which they are found. In general, ads on content networks have a much lower click-through rate
(CTR) and conversion rate
(CR) than ads found on SERPs and consequently are less highly valued. Content network properties can include websites, newsletters, and e-mails.
Advertisers pay for each click they receive, with the actual amount paid based on the amount bid. It is common practice amongst auction hosts to charge a winning bidder just slightly more (e.g. one penny) than the next highest bidder or the actual amount bid, whichever is lower. This avoids situations where bidders are constantly adjusting their bids by very small amounts to see if they can still win the auction while paying just a little bit less per click.
To maximize success and achieve scale, automated bid management systems can be deployed. These systems can be used directly by the advertiser, though they are more commonly used by advertising agencies that offer PPC bid management as a service. These tools generally allow for bid management at scale, with thousands or even millions of PPC bids controlled by a highly automated system. The system generally sets each bid based on the goal that has been set for it, such as maximize profit, maximize traffic at breakeven, and so forth. The system is usually tied into the advertiser's website and fed the results of each click, which then allows it to set bids. The effectiveness of these systems is directly related to the quality and quantity of the performance data that they have to work with - low-traffic ads can lead to a scarcity of data problem that renders many bid management tools useless at worst, or inefficient at best.
), presented a pay per click search engine proof-of-concept to the TED
conference in California
. This presentation and the events that followed created the PPC advertising system. Credit for the concept of the PPC model is generally given to Idealab
and Goto.com founder, Bill Gross.
Google started search engine advertising in December 1999. It was not until October 2000 that the AdWords system was introduced, allowing advertisers to create text ads for placement on the Google search engine. However, PPC was only introduced in 2002; until then, advertisements were charged at cost-per-thousand impressions
. Overture has filed a patent infringement lawsuit against Google, saying the rival search service overstepped its bounds with its ad-placement tools.
Although GoTo.com started PPC in 1998, Yahoo! did not start syndicating GoTo.com (later Overture) advertisers until November 2001. Prior to this, Yahoo's primary source of SERPS advertising included contextual IAB advertising units (mainly 468x60 display ads). When the syndication contract with Yahoo! was up for renewal in July 2003, Yahoo! announced intent to acquire Overture for $1.63 billion.
Online advertising
Online advertising is a form of promotion that uses the Internet and World Wide Web to deliver marketing messages to attract customers. Examples of online advertising include contextual ads on search engine results pages, banner ads, blogs, Rich Media Ads, Social network advertising, interstitial...
model used to direct traffic to websites, where advertisers pay the publisher (typically a website owner) when the ad is clicked. With search engines, advertisers typically bid on keyword
Keyword (Internet search)
An index term, subject term, subject heading, or descriptor, in information retrieval, is a term that captures the essence of the topic of a document. Index terms make up a controlled vocabulary for use in bibliographic records. They are an integral part of bibliographic control, which is the...
phrases relevant to their target market
Target market
A target market is a group of customers that the business has decided to aim its marketing efforts and ultimately its merchandise. A well-defined target market is the first element to a marketing strategy...
. Content sites commonly charge a fixed price per click rather than use a bidding system. PPC "display" advertisements are shown on web sites with related content that have agreed to show ads. This approach differs from the "pay per impression" methods used in television and newspaper
Newspaper circulation
A newspaper's circulation is the number of copies it distributes on an average day. Circulation is one of the principal factors used to set advertising rates. Circulation is not always the same as copies sold, often called paid circulation, since some newspapers are distributed without cost to the...
advertising.
In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, PPC implements the so-called affiliate model, that provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point click-through to the merchant. It is a pay-for-performance model: If an affiliate does not generate sales, it represents no cost to the merchant. Variations include banner exchange, pay-per-click, and revenue sharing programs.
Websites that utilize PPC ads will display an advertisement when a keyword query matches an advertiser's keyword list, or when a content site displays relevant content. Such advertisements are called sponsored links or sponsored ads, and appear adjacent to or above organic results
Organic search
Organic search results are listings on search engine results pages that appear because of their relevance to the search terms, as opposed to their being advertisements. In contrast, non-organic search results may include pay per click advertising....
on search engine results pages, or anywhere a web developer
Web developer
A web developer is a software developer or software engineer who specializes in, or is specifically engaged in, the development of World Wide Web applications, or distributed network applications that are run over HTTP from a web server to a web browser....
chooses on a content site.
Among PPC providers, Google AdWords
AdWords
Google AdWords is Google's main advertising product and main source of revenue. Google's total advertising revenues were USD$28 billion in 2010. AdWords offers pay-per-click advertising, cost-per-thousand advertising, and site-targeted advertising for text, banner, and rich-media ads. The AdWords...
, Yahoo! Search Marketing
Yahoo! Search Marketing
Yahoo! Search Marketing is a keyword-based "Pay per click" or "Sponsored search" Internet advertising service provided by Yahoo!.Yahoo began offering this service after acquiring Overture Services, Inc....
, and Microsoft adCenter
Microsoft adCenter
Microsoft adCenter , is the division of the Microsoft Network responsible for MSN's advertising services. Microsoft adCenter provides pay per click advertisements. This is a service aimed at people who want to advertise a product...
are the three largest network operators, and all three operate under a bid-based model.
The PPC advertising model is open to abuse through click fraud
Click fraud
Click fraud is a type of Internet crime that occurs in pay per click online advertising when a person, automated script or computer program imitates a legitimate user of a web browser clicking on an ad, for the purpose of generating a charge per click without having actual interest in the target...
, although Google
Google
Google Inc. is an American multinational public corporation invested in Internet search, cloud computing, and advertising technologies. Google hosts and develops a number of Internet-based services and products, and generates profit primarily from advertising through its AdWords program...
and others have implemented automated systems to guard against abusive clicks by competitors or corrupt web developers.
Determining cost per click
There are two primary models for determining cost per click: flat-rate and bid-based. In both cases the advertiser must consider the potential value of a click from a given source. This value is based on the type of individual the advertiser is expecting to receive as a visitor to his or her website, and what the advertiser can gain from that visit, usually revenue, both in the short term as well as in the long term. As with other forms of advertising targeting is key, and factors that often play into PPC campaigns include the target's interest (often defined by a search term they have entered into a search engine, or the content of a page that they are browsing), intent (e.g., to purchase or not), location (for geo targetingGeo targeting
Geo targeting in geomarketing and internet marketing is the method of determining the geolocation of a website visitor and delivering different content to that visitor based on his or her location, such as country, region/state, city, metro code/zip code, organization, IP address, ISP or other...
), and the day and time that they are browsing.
Flat-rate PPC
In the flat-rate model, the advertiser and publisher agree upon a fixed amount that will be paid for each click. In many cases the publisher has a rate card that lists the Cost Per Click (CPC) within different areas of their website or network. These various amounts are often related to the content on pages, with content that generally attracts more valuable visitors having a higher CPC than content that attracts less valuable visitors. However, in many cases advertisers can negotiate lower rates, especially when committing to a long-term or high-value contract.The flat-rate model is particularly common to comparison shopping engines
Price comparison service
On the internet, a price comparison service allows individuals to see different lists of prices for specific products. Most price comparison services do not sell products themselves, but source prices from retailers from whom users can buy...
, which typically publish rate cards. However, these rates are sometimes minimal, and advertisers can pay more for greater visibility. These sites are usually neatly compartmentalized into product or service categories, allowing a high degree of targeting by advertisers. In many cases, the entire core content of these sites is paid ads.
Bid-based PPC
In the bid-based model, the advertiser signs a contract that allows them to compete against other advertisers in a private auction hosted by a publisher or, more commonly, an advertising networkAdvertising network
An online advertising network or ad network is a company that connects advertisers to web sites that want to host advertisements. The key function of an ad network is aggregation of ad space supply from publishers and matching it with advertiser demand...
. Each advertiser informs the host of the maximum amount that he or she is willing to pay for a given ad spot (often based on a keyword
Keyword (Internet search)
An index term, subject term, subject heading, or descriptor, in information retrieval, is a term that captures the essence of the topic of a document. Index terms make up a controlled vocabulary for use in bibliographic records. They are an integral part of bibliographic control, which is the...
), usually using online tools to do so. The auction plays out in an automated fashion every time a visitor triggers the ad spot.
When the ad spot is part of a search engine results page (SERP), the automated auction takes place whenever a search for the keyword that is being bid upon occurs. All bids for the keyword that target the searcher's geo-location, the day and time of the search, etc. are then compared and the winner determined. In situations where there are multiple ad spots, a common occurrence on SERPs, there can be multiple winners whose positions on the page are influenced by the amount each has bid. The ad with the highest bid generally shows up first, though additional factors such as ad quality and relevance can sometimes come into play (see Quality Score
Quality Score
Quality Score is a variable used by Google, Yahoo! , and MSN that can influence both the rank and cost per click of ads....
).
In addition to ad spots on SERPs, the major advertising networks allow for contextual ads to be placed on the properties of 3rd-parties with whom they have partnered. These publishers sign up to host ads on behalf of the network. In return, they receive a portion of the ad revenue that the network generates, which can be anywhere from 50% to over 80% of the gross revenue paid by advertisers. These properties are often referred to as a content network and the ads on them as contextual ads because the ad spots are associated with keywords based on the context of the page on which they are found. In general, ads on content networks have a much lower click-through rate
Click-through rate
Clickthrough rate is a way of measuring the success of an online advertising campaign. The clickthrough rate of an advertisement is defined as the number of clicks on an ad divided by the number of times the ad is shown , expressed as a percentage. For example, if a banner ad is delivered 100...
(CTR) and conversion rate
Conversion rate
In internet marketing, conversion rate is the ratio of visitors who convert casual content views or website visits into desired actions based on subtle or direct requests from marketers, advertisers, and content creators...
(CR) than ads found on SERPs and consequently are less highly valued. Content network properties can include websites, newsletters, and e-mails.
Advertisers pay for each click they receive, with the actual amount paid based on the amount bid. It is common practice amongst auction hosts to charge a winning bidder just slightly more (e.g. one penny) than the next highest bidder or the actual amount bid, whichever is lower. This avoids situations where bidders are constantly adjusting their bids by very small amounts to see if they can still win the auction while paying just a little bit less per click.
To maximize success and achieve scale, automated bid management systems can be deployed. These systems can be used directly by the advertiser, though they are more commonly used by advertising agencies that offer PPC bid management as a service. These tools generally allow for bid management at scale, with thousands or even millions of PPC bids controlled by a highly automated system. The system generally sets each bid based on the goal that has been set for it, such as maximize profit, maximize traffic at breakeven, and so forth. The system is usually tied into the advertiser's website and fed the results of each click, which then allows it to set bids. The effectiveness of these systems is directly related to the quality and quantity of the performance data that they have to work with - low-traffic ads can lead to a scarcity of data problem that renders many bid management tools useless at worst, or inefficient at best.
History
In February 1998 Jeffrey Brewer of Goto.com, a 25-employee startup company (later Overture, now part of Yahoo!Yahoo! Search Marketing
Yahoo! Search Marketing is a keyword-based "Pay per click" or "Sponsored search" Internet advertising service provided by Yahoo!.Yahoo began offering this service after acquiring Overture Services, Inc....
), presented a pay per click search engine proof-of-concept to the TED
TED (conference)
TED is a global set of conferences owned by the private non-profit Sapling Foundation, formed to disseminate "ideas worth spreading"....
conference in California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
. This presentation and the events that followed created the PPC advertising system. Credit for the concept of the PPC model is generally given to Idealab
Idealab
Idealab is a business incubator based in Pasadena, California.-History:Idealab was founded by Bill Gross in March 1996...
and Goto.com founder, Bill Gross.
Google started search engine advertising in December 1999. It was not until October 2000 that the AdWords system was introduced, allowing advertisers to create text ads for placement on the Google search engine. However, PPC was only introduced in 2002; until then, advertisements were charged at cost-per-thousand impressions
Cost Per Impression
Cost per impression, often abbreviated to CPI or CPM for Cost per thousand impressions, is a phrase often used in online advertising and marketing related to web traffic. It is used for measuring the worth and cost of a specific e-marketing campaign. This technique is applied with web banners,...
. Overture has filed a patent infringement lawsuit against Google, saying the rival search service overstepped its bounds with its ad-placement tools.
Although GoTo.com started PPC in 1998, Yahoo! did not start syndicating GoTo.com (later Overture) advertisers until November 2001. Prior to this, Yahoo's primary source of SERPS advertising included contextual IAB advertising units (mainly 468x60 display ads). When the syndication contract with Yahoo! was up for renewal in July 2003, Yahoo! announced intent to acquire Overture for $1.63 billion.
See also
- Ad servingAd servingAd serving describes the technology and service that places advertisements on web sites. Ad serving technology companies provide software to web sites and advertisers to serve ads, count them, choose the ads that will make the website or advertiser most money, and monitor progress of different...
- Ad text optimizationAd text optimizationAd text optimization is the process of improving the performance of a text Pay Per Click Advertisement on search engines by improving its Click Through Rate performance both in terms of volume and quality of response, that is “more buyers, less browsers”...
- Click farmClick farmA click farm is a form of click fraud, where a large group of low-paid workers is hired to click on paid advertising links for the click fraudster . The workers click the links, surf the target website for a period of time, and possibly sign up for newsletters prior to clicking another link...
- Click-through rateClick-through rateClickthrough rate is a way of measuring the success of an online advertising campaign. The clickthrough rate of an advertisement is defined as the number of clicks on an ad divided by the number of times the ad is shown , expressed as a percentage. For example, if a banner ad is delivered 100...
- Contextual advertisingContextual advertisingContextual advertising is a form of targeted advertising for advertisements appearing on websites or other media, such as content displayed in mobile browsers...
- Conversion (marketing)
- Cost per actionCost Per ActionCost Per Action or CPA is an online advertising pricing model, where the advertiser pays for each specified action linked to the advertisement....
- Cost per engagementCost per engagementThe term Cost Per Engagement was originated in late 2006 by Highedge, Inc., the company that developed the Brickfish social media advertising network. Highedge, Inc. owns the Cost Per Engagement trademark...
- Cost per thousand
- In-text advertisingIn-text advertisingIn-text advertising is a form of contextual advertising where specific keywords within the text of a web-page are matched with advertising and/or related information units.-Description:...
- Pay for placementPay for placementPay for placement, or P4P, is an Internet advertising model in which advertisements appear along with relevant search results from a Web search engine. Under this model, advertisers bid for the right to present an advertisement with specific search terms in an open auction...
- PPC CopywritingPPC CopywritingPPC Copywriting is advertising text that accompanies a web-based advertisement, costing the advertising company money only when a user clicks on the advertisement's graphic...
- Search advertisingSearch advertisingIn Internet Marketing, Search Advertising is a method of placing online advertisements on Web pages that show results from search engine queries. Through the same search-engine advertising services, ads can also be placed on Web pages with other published ....
- Search engine marketingSearch engine marketingSearch engine marketing, , is a form of Internet marketing that seeks to promote websites by increasing their visibility in search engine result pages through the use of paid placement, contextual advertising, and paid inclusion...
- Search Engine WatchSearch Engine WatchSearch Engine Watch is a website that provides news and information about search engines and search engine marketing. Search Engine Watch was started by Danny Sullivan in 1996. In 1997, Sullivan sold it for an undisclosed amount to MecklerMedia...
- Search engine optimization copywriting
External links
- Paid listings confuse web searchers, PC World