In this video, Product Manager Nundu Janakiram explains how AdWords works.
One of the things that makes Google search especially valuable is that it’s completely free. So, how does Google make money and continue to drive constant innovation? We give advertisers the opportunity to place clearly-marked ads alongside our search results. We strive to help people find ads that are relevant and useful, just like our results.
Here you can see the organic search results in the middle, and clearly marked ads at the top and right.
Strict Separation of Ads and Search Results
When someone does a search on Google.com, results appear in the middle of the page – and those links are never paid (they are sometimes called “organic” or “editorial” search results). Advertisements appear on the right hand side and sometimes at the top – and those links are paid, and always clearly marked as “Ads.”
Although everyone now expects advertisements to be differentiated from organic search results, when Google was founded search engines routinely allowed websites to pay for inclusion in search results. At Google, we made it a key principle to never accept payment to improve rankings. In fact, in our 2004 Founders Letter, we made clear that “we do not accept payment for [our search results] or for inclusion or more frequent updating.” To this day, we maintain a strict separation between our search business and our advertising business and we do not give any special treatment to Google advertisers. Our view is that if Google offers the best search results, in the long-run people will continue to choose to use Google over other search engines.
Prices Set by Competitive Auction
All major search engines use auctions to price ads. The reason is simple: there are millions of keywords that need to be priced and it would be impossible to set all those prices by hand. Using an automatic, real-time auction removes the burden of people having to do this manually – instead, the prices are determined by the auction participants. These auctions run automatically every time a user enters a query, so they always reflect the current values that advertisers place on keywords.
Advertisers use Google’s AdWords system to create their ads, select the search keywords that they want to trigger their ad, indicate their daily budget, and place their cost-per-click bid. Google does not prevent advertisers from advertising in other places, there are no minimum budgets or durations, and advertisers never pay more than their maximum bid for a click. The advertiser is charged a price that depends on both bid and Quality Score. The price charged is the minimum necessary to retain the advertiser’s position in the list.
Every major search engine – including Bing and Yahoo – uses automatically assigned quality scores to ensure relevant ads for consumers. As our chief economist Hal Varian has outlined, this system leads to a better auction by enabling advertisers to buy clicks, publishers to monetize content, and users to see relevant ads. At Google, the components of Quality Scores break down into three categories: ad performance, relevance to the search, and landing page quality. You can read more in our Search Ads Quality Getting Started Guide.
Learn more about the Google bid simulator, which provides more transparency for advertisers.
Transparency for Advertisers
Over the years we have worked to provide advertisers with more transparency and tools to help them manage their campaigns. For example, in 2008 we replaced minimum bids with “first page bids,” which help advertisers understand how much they’ll need to bid for a certain keyword in order for their ad to appear on the first page of results. In 2009, we introduced the bid simulator, which helps advertisers understand how their ad will be affected by changing their auction bid. We’ve found that the more information we can share with advertisers, the more confident they’ll be advertising on Google.
Data Openness and Portability
Many advertisers use more than one ad platform. We make it easy for advertisers to move their ad campaign data out of Google’s services. Our Data Liberation Front provides step by step instructions for how advertisers can export their ad campaigns via CSV file. Advertisers also have the ability to export their ad data through our AdWords Application Programming Interface (API). In fact, Microsoft provides instructions for advertisers on how to import their Google ad data into its platform.