Google AdsWords Works

AdWords offers pay-per-click (PPC) advertising, and site-targeted advertising for both text and banner ads. The AdWords program includes local, national, and international distribution. Google's text advertisements are short, consisting of one title line and two content text lines. Image ads can be one of several different Interactive Advertising Bureau (IAB) standard sizes.

AdWords is Google's flagship advertising product and main source of revenue ($16.4 billion in 2007).

Advertisers specify the words that should trigger their ads and the maximum amount they are willing to pay per click. When a user searches Google's search engine on www.google.com or the relevant local/national google server (e.g. www.google.co.in for India), ads (also known as creatives by Google) for relevant words are shown as "sponsored links" on the right side of the screen, and sometimes above the main search results.

The ordering of the paid listings depends on other advertisers' bids (PPC) and the "quality score" of all ads shown for a given search. The quality score is calculated by historical click-through rates and the relevance of an advertiser's ad text and keywords, as determined by Google. The quality score is also used by Google to set the minimum bids for an advertiser's keywords.. The precise formula and meaning of relevance and its definition is in part secret to Google and whose parameters can be dynamically changed.

The auction mechanism that determines the order of the ads has been called a "generalized second price" auction. It is similar to the Vickrey auction, but is not equivalent to the Vickrey-Clarke-Groves (VCG) mechanism and hence truth telling is not an optimal strategy.

In 2003 Google introduced site-targeted advertising. Using the AdWords control panel, advertisers can enter keywords of interest, and Google offers to place ads on what they claim are relevant sites within their content network. Advertisers then bid on a cost per impression (CPI | CPM) basis for placement. Advertisers can also enter domains directly. Google will provide a list of related sites that you can select along with your entered site.

Site targeting campaigns are mainly designed for branding purposes, as the ROI will almost always be considerably lower than a traditional content-targeted campaign. Your ad will take up the entire ad block (as opposed to being 1 of 4 ads in a traditional AdSense ad unit), which will make it more prominent but cost quite a bit more.

The minimum CPM you can set on a Site-Targeted campaign is 25 cents.