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Pay-per-click (PPC) is an
Pay-per-click is usually associated with first-tier search engines (such as
However, websites can offer PPC ads. Websites that utilize PPC ads will display an advertisement when a query (keyword or phrase) matches an advertiser's keyword list that has been added in different ad groups, 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 (SERP), 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.
Pay-per-click, along with
Cost-per-click (CPC) is calculated by dividing the advertising cost by the number of clicks generated by an advertisement. The basic formula is:
- Cost-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 their website, and what the advertiser can gain from that visit, which is usually short-term or long-term revenue. 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),
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 cost per click 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 on
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
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 targets the searcher's Geo-location, the day and time of the search, etc. are then compared, and the winner is determined. All this happens in real-time, therefore this is called real-time-bidding or RTB, and in a fraction of a second. 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 and the quality of their ad. 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 Ads and Bing Ads also offer the Broad Match Modifier type (although Google retired it in July 2021) 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
Advertisers pay for every single click they receive, with the actual amount paid based on the amount of 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.
In order 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 maximizing profit, maximizing traffic, getting 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.
As a rule, the contextual advertising system (Google Ads, Yandex.Direct, etc.) uses an auction approach as the advertising payment system.
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 websites, 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
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,
Among PPC providers,
- Customers are 50% more likely to purchase something after clicking a paid ad.
- SMEs spend $108,000 to $120,000 annually on PPC ads.
- 57.5% of users don't recognize paid ads when they see them.
- Click bots and fake traffic cost online advertisers $35 Billion
In 2012, Google was initially ruled to have engaged in misleading and deceptive conduct by the
A common concern amongst advertisers is the practice known as "click fraud". This takes two forms:
- Publishers who illegitimately click on or fraudulently arrange for clicks to be generated on adverts, in order to increase their own publisher revenues. In 2018, the FBI, in partnership with Google and other major industry ad platforms, cracked down on an illegal ad fraud scheme known as "3ve", which was estimated to have defrauded advertisers several millions of dollars in combined ad costs. The case highlighted the extent of ad fraud; as of 2018, ad fraud annual revenue was on track to be worth more than the illicit drug trade, with over $19 billion estimated to have been stolen by click fraudsters.
- Advertisers who attempt to derail competitors' adverts, by clicking on them in an effort to raise their competitors' costs in order to give themselves an unfair advantage in the advertising space. The Google Ads platforms claim to be able to identify such clicks, and label such traffic as "invalid clicks".
- Click-through rate
- Digital marketing
- Opportunity to see
- Pay-per-call advertising
- Paid to click
- Search engine marketing
- Search engine optimization
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