Purpose[ edit ] Pay-per-click, along with cost per impression and cost per order , are used to assess the cost effectiveness and profitability of internet marketing.
Pay-per-click has an advantage over cost per impression in that it tells us something about how effective the advertising was. Clicks are a way to measure attention and interest.
If the main purpose of an ad is to generate a click, or more specifically drive traffic to a destination, then pay-per-click is the preferred metric. Once a certain number of web impressions are achieved, the quality and placement of the advertisement will affect click through rates and the resulting pay-per-click. Construction[ edit ] Pay-per-click is calculated by dividing the advertising cost by the number of clicks generated by an advertisement.
The basic formula is: 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. Flat-rate PPC[ edit ] 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 pay-per-click PPC 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 PPC 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 , which typically publish rate cards.
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[ edit ] 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 network.
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.
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 bid and Quality Score are used to give each advertiser's advert an ad rank. The ad with the highest ad rank shows up first. The predominant three match types for both Google and Bing are broad, exact and phrase match.
Google also offers the broad modifier match type which differs from broad match in that the keyword must contain the actual keyword terms in any order and doesn't include relevant variations of the terms.
These publishers sign up to host ads on behalf of the network. 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. Content network properties can include websites, newsletters, and e-mails. It is common practice amongst auction hosts to charge a winning bidder just slightly more e.
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, get the very targeted customer at break even, 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[ edit ] There are several sites that claim to be the first PPC model on the web,  with many appearing in the mids. For example, in , the first known and documented version of a PPC was included in a web directory called Planet Oasis. The initial reactions from commercial companies to Ark Interface II's "pay-per-visit" model were skeptical, however. It was not until October 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 ; until then, advertisements were charged at cost-per-thousand impressions or Cost per mille CPM. Overture has filed a patent infringement lawsuit against Google, saying the rival search service overstepped its bounds with its ad-placement tools.
When the syndication contract with Yahoo! Search Marketing had been the three largest network operators, all three operating under a bid-based model. Their combined network of third party sites that allow AdCenter ads to populate banner and text ads on their site is called BingAds.
The Commission ruled unanimously that Google was responsible for the content of its sponsored AdWords ads that had shown links to a car sales website CarSales.
The Ads had been shown by Google in response to a search for Honda Australia. The ruling was later overturned when Google appealed to the Australian High Court.