Pay-per-click (PPC) advertising is an advertising system where the advertisers pay only for each click on their advertisements.

While it is most often used as an advertising system offered by search engines, such as Yahoo! and Google, it can also be used for banner advertising.

PPC advertising is keyword based—this means that it is based on the search term that a user enters into a search engine. A search term can have one word or be made up of many words. Sometimes a multiword search term is referred to as a “key phrase” or “keyword phrase.” Advertisers target those keywords for which they want their advertisement to appear.

For the advertiser, the beauty of PPC advertising on search engines is that their advertisements are displayed when potential customers are already expressing intent—they are searching for a product or service. It allows advertisers to present their offering to a potential customer who is already in the buying cycle.

7.1 How it works

Each of the three major search engines (Google, Yahoo! and MSN Bing) has its own pay-per-click (PPC) advertising platform, namely, AdWords, Yahoo! Search Marketing, and adCenter. While the basic process remains the same for each one, there are some differences. With PPC advertising, the advertiser does the following:

  • Creates the content for an advertisement
  • Selects the keywords for which that advertisement should appear

Chooses the maximum amount they are willing to pay for a click on the advertisement (this amount can be unique to each keyword they have selected for an advertisement)

The search engine algorithm does the following:

  • Checks the advertisement for compliance to editorial guidelines
  • Displays the advertisement for relevant search queries
  • Determines the rank, or position, of the advertisement based on the advertiser’s maximum bid and the relevance of the advertisement (which includes factors such as click-through rate [CTR], ad copy, keywords, and landing-page relevance to the search)