AdWords is an advertising program run by search company Google. Google AdWords advertisements appear in the right-hand column of all Google search results. AdWords boxes can also appear on other websites. Each ad appears in locations linked to a set of keywords that the advertiser registers with the ad.
A keyword is actually a two- or three-word phrase that best describes the product being advertised. Google has a tool to help advertisers decide on their keywords. The Keyword Tool shows a list of variations on a given keyword. Each suggested keyword is accompanied by an estimate of the popularity of the keyword with other advertisers and the number of searches both globally and locally for that keyword in the last month. Nonmembers can also use the keyword tool.
Google allocates a quality score to the selected keywords. The score is calculated on the relevance of the keyword both to the ad text and to the search term entered by the visitor. The historic click-through rate of that term and the overall CTR of the advertiser's account are also included in the calculation. The Web page to which the ad is linked is assessed for quality, and this improves or reduces the quality score of the ad.
Cost per Click
Advertisers have to bid for their rankings in the ad column. When associating a keyword with an ad, users also have to nominate the maximum cost per click they are prepared to pay to get their ad shown. The system then organizes the displayed results with the highest bid first. The entire maximum CPC is not charged to the advertiser; rather, the advertiser pays just 1 cent more than the next highest maximum CPC.
The order in which ads appear alongside search results on a Google page is determined by the product of the quality score and the maximum CPC. If advertisers improve their quality score, they can get a higher ranking -- even though they are paying less than the next highest ranking advertiser.
Google also places small blocks of ads on other sites that are not related to the search engine. The quality score in these instances is calculated differently. This score relies on the quality of the site linked to the ad and the performance of the ad in attracting click-throughs from that site and others like it.
There is no charge for displaying an ad. The advertiser only pays Google when a customer clicks the ad. Whether or not the customer goes on to buy anything from the advertised site is not taken into consideration.