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Google AdWords And Its Working Model

Google AdWords And Its Working Model

With approximately 27 million searches happening per hour, Search Engine Marketing becomes one of the important categories in digital marketing. Search engine marketing abbreviated as SEM is nothing but a marketing process to increase visibility and traffic with the help of Search Engines. It has been observed that Google holds a share of 67% out of all the search engines available. Implying, almost 7 out of 10 people are using Google as their preferred search engine followed by Yahoo and Bing.google_adwords

Launch of Google AdWords

Forecasting the boom in digital market, in October 2000, Google came up with its advertising service called Google AdWords. AdWords was launched for businesses wanting to display ads on Google and its advertising network. The AdWords program was built to enable the businesses set a budget for advertising and pays only when people clicked their ads. The ad service is largely focused on keywords. It was launched with 350 customers.

Initially, advertisers were supposed to pay a monthly amount where Google would set up as well as manage their campaign. However, to accommodate small businesses who wanted to manage their own campaigns, Google introduced the AdWords self-service portal.

Upgradation of the product

In April 2013, Google added enhanced campaigns to help advertisers improvise management of their ad campaigns in a multi-device world. The enhanced campaigns showed ads across devices with the right ad text, site links or extensions. There was no longer a need to edit each campaign for every combination of devices, location and time of day. It also included advanced reports to measure the new conversion types.

Advertising with AdWords

Advertising with AdWords begin with the creation of campaigns (set of adgroups). Google hasadwords_2 provided different types of campaigns which determine where the customer will be able to see the ads. A campaign type includes:

  1. Search Network with Display Select
  2. Search Network only
  3. Display Network only
  4. Shopping
  5. Video

These are centered on Google’s advertising network. It includes Google Search network, Google display network and the YouTube network.

Furthermore, these campaigns helps in creating various types of ads like text ads, banner ads, mobile ads, dynamic ads, display ads, call-to-action ads and many more.adwords_3

Basic working model

Google AdWords works on the basic model of bidding and auction.

When someone searches for something on Google, AdWords takes these queries as an input. It shows the ads relevant to queries by matching it with the query text and targeted keywords. Google then looks at the advertiser’s pool and determines whether there would be an auction or not.

If one or more advertisers are bidding on the keywords that are relevant to the search query then an auction is triggered.

How does Auction work?

Advertisers identify the keywords they want to bid on along with the maximum amount of money they are willing to spend. They create the group of keywords which are further paired with the ads. The AdWords system enters the most relevant keyword from different advertisers into the auction along with the maximum bidding amount specified and the associated ad.

Which ad is shown where?

With huge number of advertisers, ranking the ads became difficult. So, Google came up with the following strategy.

Once the ad is in the auction, Google looks at the two key factors: Maximum Bid and The Quality Score. On the basis of which, Ad Rank is provided hence, determining where the ad is shown.

Maximum bid is the maximum amount any advertiser is willing to spend on a keyword. On the other hand quality score is a metric to determine the relevancy of an ad and its usefulness to the user. It depends upon various factors like: Click through rate (CTR), Relevance and the Landing Page. Higher the Quality score the better it is.


Ad rank = factor of Max CPC and the Quality Score

Therefore, the ad with the highest Ad Rank gets the top position and so on.


How the advertisers pay

Once an ad is triggered on Google’s Search Engine Result Page the advertiser is charged on the basis of clicks or impressions. This is called PPC (Pay per click). What an advertiser actually pays is less than or equal to the maximum amount they had bid. It is the lowest amount necessary to beat the Ad Rank of the competitor below them. This is called Actual CPC which is formulated as:

Actual CPC = (Ad Rank of the next competitor/ your quality score) +$0.01


With Google’s online advertising program, any business can create online ads. This will help them reach the people exactly when they’re interested in the products and services that one offers. Google AdWords is a product that one can use to promote their business and raise awareness. It will help in selling the products or services as well as increase traffic to their website.

AdWords accounts are managed online, so one can create and change the ad campaign at any time. Moreover the ad text, settings, and the budget can be changed as and when required. There is no minimum spending commitment. One can set and control their budget. One can choose where the AdWords ad appears, set a comfortable budget and easily measure its impact.adwords_1

The working model of Google AdWords clearly states that higher the Ad Rank, the better the position. Bifurcating further, it implies, better the quality score, better the rank hence, the position.  In fact, advertisers with the highest rank ends up paying less than or equal to what they had bid for. This also helps Google to keep their users away from false advertisers.

The auction is processed for every search on Google. Thus, each auction can have potentially different results depending upon the competition. Hence, one can see fluctuations in the placement of ads.

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