noun \ˈad\ /wərds/
AdWords is an online advertising service that places advertising copy above, below, or beside the list of search results Google displays for a particular search query. The choice and placement of the ads is based on a proprietary algorithm called the Google AdWords Auction. It determines which ads will be displayed based on relevance to the keywords searched, ad price bid by the advertisers and click-through rate (the historical performance) of the various competing ads. This service is the primary revenue source for Google.
in layman’s terms
AdWords is the name of Google’s pay-per-click (PPC) advertising program. In the beginning, Google entered the internet as a search provider. They wrote programs (called spiders) that traverse (called crawling) the internet’s various websites, blogs and other sites to create an index of all the resources on the net. Their service allowed users to search for resources on the internet by entering keywords that they would match to websites indexed in there database. Initially all results shown for specific searches were organic. Organic is a term that means that the websites shown are displayed purely because of their relevance to the keywords searched. Google’s search engine, spiders and indexing system was so effective it became the predominate tool for finding stuff on the internet.
Leveraging their success in the organic search market, Google began to offer advertisers the opportunity to have their website advertisements placed alongside the organic search result s for a fee. Shown at the top, right and sometimes the bottom of the search results, this product was the foundation of Google’s monetization of their search engine product and was the revenue stream that made Google one of the largest and most profitable companies in the world.
Early versions of the AdWords program allowed advertisers to place their ads with any keywords they wished to pay for. Competition for ad placement was essentially a price based auction and key ad spots went to the highest bidder. Unfortunately, unscrupulous advertisers quickly took advantage of this system and began to place ads for products against unrelated keywords in the rush to have their products reach as many customers as possible. This arrangement made many of the advertisements displayed for a given search query irrelevant. The situation put the client experience while using the Google search engine at risk, and as this service formed the basis of the Google Empire, the rules were quickly changed.
Today’s Google AdWords is a sophisticated advertising product that allows advertiser to bid for ad placement against various keywords or keyword combinations. The system for deciding which ad should be displayed for a given search string is called the Google AdWords Auction. This auction is a proprietary algorithm that takes into account the advertisement’s (and it associated landing page’s) relevance to the keyword, the amount of money bid by the advertiser to have their ad shown and the historical performance of the advertisement-keyword combination (call the click thru rate). This auction process is designed to maximize both the user experience and Googles revenues attained by the AdWords product.
By ensuring the ads and landing pages are relevant to the keywords (i.e. searching for “lawn mowers” does not display an ad for cars, or worse, an ad for lawn mowers that points to a car centric landing page) Google helps ensure users are only shown ads relevant to their search criteria. Factoring in CTR is intended to favor ads that are popular and hence more likely to be relevant. This also ensures that ads shown are historically more likely to be clicked, which is good for Google as this is a requirement which must be met in order for Google to charge the advertiser. Finally each advertiser enters a maximum bid they will pay for any particular ad placement. The bid price is weighted against the other criteria to determine which ads are displayed.
The Keyword Auction is a real-time process that for each search term entered, reviews all of the advertisements competing for the given search term. For each advertisement it calculates an Ad Rank. Ad Rank is a number determined by a formula that multiplies the advertiser’s max bid by something called the advertisement’s Quality Score. The Quality Score is in turn a number determined by the advertisement’s relevancy to the search term, the advertisement quality, its landing page’s relevance and the ads historical CTR. Although the Quality score does contain many factors, most SEO specialists agree the most heavily weighted factor is the advertisement’s CTR.
The advertisement with the best Ad Rank gets the best position on the search results page. Second place gets the next spot and so on until all the advertisement spots on the page are filled. The combination of bid price and quality score is intended to balance the price an advertiser is willing to pay for an ad with the user experience. Poor ads (i.e. low quality score) will have a tough time creating a high page rank even with higher bids, and conversely, quality ads (i.e. high quality score) can pay less for a first position advertisement then lesser quality advertisers.
Everyone wins, especially Google.