Pay-per-click facts for kids
Pay-per-click (PPC) is a way for businesses to advertise online. It means an advertiser pays money each time someone clicks on their ad. This helps send people to the advertiser's website.
PPC is often used with big search engines like Google Ads, Amazon Advertising, and Microsoft Advertising. When you search for something, advertisers bid on words or phrases related to what they sell. If their ad shows up and you click it, they pay. Some websites charge a set price per click instead of using a bidding system.
You might also see PPC ads, sometimes called banner ads, on websites that have similar content. Social media sites like Facebook, Instagram, and TikTok also use PPC for their ads. The amount an advertiser pays depends on the ad's quality and how much they are willing to pay per click. Better quality ads usually cost less per click.
Websites can show PPC ads when your search matches an advertiser's keywords. These ads are often called sponsored links or sponsored ads. They appear near or around the regular search results.
Sometimes, people try to cheat the system with "click fraud." This means fake clicks are made to waste an advertiser's money. But companies like Google have systems to stop these bad clicks.
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Why PPC is Used
PPC helps businesses see how well their online ads are working. It's a way to measure if an ad is worth the money spent. Another way to pay for ads is "cost per impression" (CPM), where advertisers pay for every 1000 times their ad is shown.
PPC has an advantage over CPM because it shows how many people were interested enough to click. Clicks show that people are paying attention and want to learn more. If an ad's main goal is to get people to visit a website, then PPC is a great way to measure that success. The way an ad looks and where it's placed can affect how many people click it.
How PPC Costs Are Calculated
The cost-per-click (CPC) is found by dividing the total advertising cost by the number of clicks the ad received.
Here is the simple math:
- Cost-per-click ($) = Total Ad Cost ($) / Number of Clicks (#)
There are two main ways to figure out PPC costs: flat-rate and bid-based. In both cases, advertisers think about how much a click might be worth to them. This value depends on who clicks the ad and what the advertiser hopes to gain, like making sales.
Targeting is very important for PPC. Advertisers often focus on things like what a person is searching for, what they want to do (like buy something), their location, the device they are using (phone or computer), and even the time of day.
Flat-Rate PPC Explained
In the flat-rate system, the advertiser and the website owner agree on a set price for each click. Many website owners have a price list for different parts of their site. For example, content that attracts more valuable visitors might have a higher cost per click.
Advertisers can sometimes get lower prices, especially if they agree to advertise for a long time or spend a lot of money. This flat-rate model is common on websites that compare prices for products. These sites are usually organized into clear categories, which helps advertisers target their ads very well.
Bid-Based PPC Auctions
In the bid-based system, advertisers compete against each other in a private auction. This auction is usually run by a publisher or an advertising network. Each advertiser tells the host the most they are willing to pay for an ad spot. This is often based on specific keywords.
This auction happens automatically every time someone triggers an ad spot. For example, when you search for a keyword, the auction happens in a tiny fraction of a second. All bids for that keyword are compared, and the winner is chosen. This is called real-time bidding (RTB).
If there are many ad spots, like on a search results page, there can be multiple winners. Their position on the page depends on their bid and the quality of their ad. The ad with the highest "ad rank" (a score based on bid and quality) shows up first.
Major advertising networks also let ads appear on other websites that have partnered with them. These websites host ads and get a share of the money the network earns. These are often called content networks, and the ads are contextual ads. This is because the ads are related to the content of the page they are on.
Advertisers pay for every click they get. The winner of an auction usually pays just a little bit more (like one penny) than the next highest bidder. This helps keep the bidding fair.
Special computer programs can help manage these bids. These programs can control thousands or even millions of PPC bids automatically. They set bids based on goals, like making the most profit or getting the most visitors. These systems work best when they have a lot of data about how well ads are performing.
History of PPC
Many websites claim to have had the first PPC model in the mid-1990s. For example, in 1996, a web directory called Planet Oasis included a "pay-per-visit" model. At first, companies were unsure about it. But by the end of 1997, over 400 big brands were paying for clicks.
In 1998, Jeffrey Brewer from Goto.com (which later became Overture) showed off a pay-per-click search engine. Many people give credit for the PPC idea to Idealab and Goto.com founder Bill Gross.
Google started its search engine advertising in December 1999. In October 2000, they launched the AdWords system. But PPC was only added in 2002. Before that, ads were charged based on how many times they were seen (cost-per-thousand impressions).
Today, Google Ads (formerly Google AdWords), Microsoft adCenter, and Yahoo! Search Marketing are some of the biggest PPC providers. For example, in 2014, online advertising (mostly PPC) made up about $45 billion of Google's total yearly earnings. In 2010, Yahoo and Microsoft teamed up. Microsoft's Bing now powers Yahoo's search results, and their combined PPC platform is called BingAds.
PPC Facts
- Customers are 50% more likely to buy something after clicking a paid ad.
- Small and medium-sized businesses spend a lot on PPC ads each year.
- More than half of users (57.5%) don't realize they are looking at paid ads.
- Fake clicks and bots cost online advertisers billions of dollars.
PPC and the Law
In 2012, Google faced a legal case in Australia. The case was about misleading ads shown through Google's AdWords system. These ads suggested that a car sales website was connected to Honda Australia, which it wasn't.
The court first said Google was responsible for the misleading content. However, Google appealed this decision to a higher court, and the ruling was overturned. The higher court decided that Google was not responsible for the misleading ads, even though they were shown using Google's tools. This case showed how complex advertising laws can be.
Understanding Click Fraud
"Click fraud" is a big worry for advertisers. It happens in two main ways:
- Fake clicks by publishers: Some website owners might click on ads themselves or arrange for others to click them. They do this to unfairly increase the money they earn from showing ads. In 2018, the FBI worked with Google to stop a large ad fraud scheme that cost advertisers millions of dollars.
- Clicks by competitors: Some advertisers try to hurt their rivals by clicking on their ads many times. This makes the competitor's advertising costs go up, giving them an unfair advantage. Google Ads says it can find these "invalid clicks" and not charge advertisers for them.
See also
- Advertising
- Clickthrough rate
- Digital marketing
- Search engine marketing
- Search engine optimization
