Pay-Per-Click advertisements (PPC)

Pay-Per-Click advertisements (PPC)

Advertisers specify the words that should trigger their ads and the maximum amount they are willing to pay per click. When a user searches Google's search engine on www.google.com or the relevant local/national google server (e.g. www.google.co.uk for The United Kingdom), ads (also known as creatives by Google) for relevant words are shown as "sponsored links" on the right side of the screen, and sometimes above the main search results.

The ordering of the paid-for listings depends on other advertisers' bids (PPC) and the "quality score" of all ads shown for a given search. The quality score is calculated by historical click-through rates, relevance of an advertiser's ad text and keywords, an advertiser's account history, and other relevance factors as determined by Google. The quality score is also used by Google to set the minimum bids for an advertiser's keywords[1]. The minimum bid takes into consideration the quality of the landing page as well, which includes the relevancy and originality of content, navigability, and transparency into the nature of the business [2]. Though Google has released a list of full guidelines for sites [3], the precise formula and meaning of relevance and its definition is in part secret to Google and the parameters used can change dynamically.

The auction mechanism that determines the order of the ads has been described as a Generalized second-price auction. [4][5] This is claimed to have the property that the participants do not necessarily fare best when they truthfully reveal any private information asked for by the auction mechanism (in this case, the value of the keyword to them, in the form of a "truthful" bid).