What is PPC Advertising?

The online advertising business is big - real big. It really started to take off in the late 1990s and into 2000, before the big dot-com crash of 2001. But online ad spending has stealthily been growing year by year ever since, with more and more companies moving ad dollars from TV, Radio, direct mail, and Yellow Page directories and onto the Internet. Banner ads and pop-up graphical ads were the most common format you would see in the early days of online ads - even today banners of various sizes appear on all the leading Internet properties. But contextual text ads got their start alongside search results at search engines, and have since gone mainstream. Keep reading to learning about what PPC and CPC mean, how PPC and keyword advertising works, and more.

Keyword Advertising

Overture (now part of Yahoo) was the first company to let advertisers bid to place their ads alongside search engine search results. Someone searches for "trampolines", and your ad for trampolines shows up above the first search results, for a fee. If someone clicks on your ad and visits your site, you are charged an advertising fee. You only pay when someone clicks on the ad and visits your webpage. This is called keyword advertising and is also known as CPC or PPC (Cost Per Click or Pay Per Click). The names mean what they say -- you pay when someone clicks on your ad, their is a cost for each click and visitor you receive. Initially, these ads only appeared on the big search engines, usually above search results (highlighted in a different color or something to denote them as paid listings or advertisements) or off to the right side of the screen. Google initially had no advertising on their site, but were lured by the big money available once their traffic grew and grew and they became the biggest search engine. They refined Overtures model and created the AdWords program, whereby advertisers could bid on keywords and phrases and have their ads show up alongside search results for those words and phrases. This worked well, allowing Google to show relevant ads to their tens of millions of daily visitors, bringing in billions of dollars in revenue over the years.

Google expanded the AdWords program to include other sites besides their own. Sure, they might dish up 100 million searches each day, but those searchers then left Google after clicking on some other site and then clicked through hundreds of millions of more pages. What if Google could also display ads on a bunch of other sites and domains? This led to the creation of the Google AdSense program, which basically expands AdWords to a whole network of partner sites who choose to sign up with Google and put the ad code on their pages. Google's trick to making a lot of money is to analyze the text and content of any given page, and then to selectively match the best advertisers from their millions of ad partners and display their relevant ads on that page. So a page about barbecues has ads about barbecues on it. With AdSense, Google hugely expands their reach to millions and millions of sites, instead of just Google.com.

Best PPC Ad Networks

Of course their success has drawn competion. Yahoo has moved beyond Overture and created their own Yahoo Publisher Network, where partner sites can sign up to display contextual text ads, just like with the Google AdSense program. This is a new program for Yahoo and the debate is still open as to how they will fare. Google has such a massive stable of advertisers, it will be tough for Yahoo to woo them over to their side and get them to try advertising on the Yahoo network. Microsoft, too, has made some significant investments and moves into the field, launching the new Microsoft AdCenter (adcenter.microsoft.com) to run ads across their network of sites. According to Microsoft, the average cost of a sales lead (potential customer) online is 29 cents vs. $1.18 for yellow pages ads and $9.94 for direct mail inserts. And since 80% of online shoppers start their research and buying quest at a search engine, PPC keyword ads make a lot of "cents/sense" for advertisers trying to reach these buyers. MS even makes it easy to import your keyword list from Yahoo or Google if you are already an advertiser there (many companies have literally hundreds and thousands of terms they bid on for keyword ads). AdCenter allows you to target by geographic location, gender, age, and hour of day or day of week. As with all PPC and CPC networks, your advertising cost will be based upon the competitive landscape of your marketplace and the demand for ads. The more people bidding on your keywords, the higher the cost per click needed to win the bidding and get your ad displayed. For most people, setting your maximum cost per click you are willing to pay is an easy break even analysis. If 10% of your visitors convert to customers, with an average profit of $20 per customer, then you will earn $20 for every 10 visitors (clicks) you get -- so you could afford to pay up to $2 per click ($20 for 10 visitors, results in 1 sale with a $20 profit) and still breakeven. $2 per click would be your maximum bid - anything else would lose you money each time someone clicked, though in theory that might be OK if many of your customers become repeat customers, and you make up the initial loss on future, repeat sales. For most companies though, they will bid somewhere below their break even cost and drop out of the bidding once the cost per click gets too close to the break even point.