Pay-per-click (PPC), also called cost per click (CPC), is an internet advertising model used to direct traffic to websites, in which an advertiser pays a publisher (typically a website owner or a network of websites) when the ad is clicked.
Pay-per-click is commonly associated with first-tier search engines (such as Google AdWords and Microsoft Bing Ads). With search engines, advertisers typically bid on keyword phrases relevant to their target market. In contrast, content sites commonly charge a fixed price per click rather than use a bidding system. PPC "display" advertisements, also known as "banner" ads, are shown on web sites with related content that have agreed to show ads and are typically not pay-per-click advertising. Social networks such as Facebook and Twitter have also adopted pay-per-click as one of their advertising models.
However, websites can offer PPC ads. 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, above, or beneath organic results on search engine results pages, or anywhere a web developer chooses on a content site.
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.
Purpose
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
Pay-per-click is calculated by dividing the advertising cost by the
number of clicks generated by an advertisement. The basic formula is:
Pay-per-click
($) = Advertising cost ($) ÷ Ads clicked (#)
There are two primary models for determining pay-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 targeting), 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 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. 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
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. 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 bid and Quality Score are used to give each advertise'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.
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.
History
There are several sites that claim to be the first PPC model on the web.
with many appearing in the mid-1990s. For example, in 1996, the first known and
documented version of a PPC was included in a web directory called Planet
Oasis. This was a desktop application featuring links to informational and
commercial web sites, and it was developed by Ark Interface II, a division of Packard Bell NEC Computers. The initial reactions from commercial companies to
Ark Interface II's "pay-per-visit" model were skeptical, however. By
the end of 1997, over 400 major brands were paying between $.005 to $.25 per
click plus a placement fee.
In February 1998 Jeffrey Brewer of Goto.com, a 25-employee startup company (later Overture, now part of Yahoo!), 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 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.
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. Today, companies such
as adMarketplace, ValueClick and adknowledge offer PPC services, as an
alternative to AdWords and AdCenter.
Among PPC providers, Google AdWords, Yahoo!
Search Marketing, and Microsoft
adCenter had been the three largest network operators,
all three operating under a bid-based model. In 2010, Yahoo and Microsoft
launched their combined effort against Google, and Microsoft's Bing began to
be the search engine that Yahoo used to provide its search results. Since they
joined forces, their PPC platform was renamed AdCenter. Their combined network
of third party sites that allow AdCenter ads to populate banner and text ads on
their site is called BingAds.
Legal
In 2012 Google was ruled to have engaged in misleading and deceptive
conduct by the Australian Competition and Consumer Commission in possibly the first legal case of its kind. 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 ACCC said
the ads were deceptive, as they suggested CarSales was connected to the Honda
company. The ruling was later overturned when Google appealed to the Australian
High Court. Google was found not liable for the misleading advertisements run
through AdWords despite the fact that the ads were served up by Google and
created using the company’s tools.
Information taken from WIKIPEDIA
