Google Speaks: Secrets of the World's Greatest Billionaire Entrepreneurs, Sergey Brin and Larry Page

5.10. TWO WAYS TO ADVERTISE: ADWORDS AND ADSENSE

Google's advertising program has two distinct segments: AdWords, for those wishing to advertise a product or service, and AdSense, for websites wishing to get paid for displaying ads.

Launched in 2000, AdWords is Google's flagship advertising product and primary source of revenue. The pay-per-click advertising includes text and banner ads. In the beginning, advertisers paid a set monthly fee for Google to set up and manage their campaigns. AdWords soon became something quite different—a self-service portal, a do-it-yourself tool that helped myriad small businesses get noticed.

In this second-generation service, advertisers bid both on words that should deliver their ads and on the maximum amount they are willing to pay per click. While the process is shrouded in mystery, one feature clearly appeals to advertisers. Google uses a Vickery auction system, in which winning bidders pay only one cent more than second-place bidders. This gives advertisers the courage to bid high, knowing that they will not be penalized if they are far above the market.

When a user Googles the bid-upon word, ads, also called creatives by Google, are shown as "sponsored links" at the top or on the right side of the screen. If the ad is appealing enough to inspire a searcher to click on it, the advertiser pays Google for every click.

The bid price helps get ads top placement on websites, but that is not the only factor. The ad can achieve top listing only ...