What Is Google AdWords? Learn How AdWords Work

8 Min Read. |

The revolution in the advertising industry has been phenomenal with the evolution of the internet. Google being the household name for the internet, has been a boon to marketers from the beginning and with the introduction of “Google AdWords” in the year 2000, it has given a solid platform for advertisers to capture the leads at different stages of sales funnel. Now the question is, what is Google AdWords?

Let’s learn Google AdWords!

What is Google AdWords?

Let’s understand the Google AdWords meaning. Google AdWords is an advertising platform which connects potential customers who are looking for a product or a service to the advertisers offering the same. This powerful platform enables advertisers to offer their product or service to the most relevant customers at the crucial stage of their purchase funnel.

Where are AdWords Ads shown?

Google AdWords ads are shown broadly in two networks; Search Network and Display Network. Search network comprises of Google Search, Google Play, Google shopping, Google maps, and Google search partner sites. Display network comprises of more than 2 million websites reaching 90% of people on the internet including Gmail, YouTube. Basically, with Google AdWords, an advertiser can reach his/her customer pretty much anywhere on the internet!

What are the various ad formats available?

With Google, your ads can become as interesting as possible. AdWords provides you with a plethora of ad formats to choose from;

  • Text Ads: Simple yet effective text ads with 2 headlines of 30 characters each and a description of 80 characters. Make these text ads more compelling by using ad extensions such as site extension, call extension, location extension, message extension etc.
What is Google AdWords

Google AdWords Text Ads

  • Image Ads: Draw the attention of users on more than 2 million websites by using attractive image ad formats such as static graphics, ads in .gif, flash ads etc. This format is available only for display network.
  • Responsive Ads: The major challenge for advertising in display network is to fit your ad to the available ad space on third-party websites. To make your life easy, AdWords provides “Responsive Ads” which automatically adjusts the size & format according to the ad space available and it also considers the device & the internet speed of the user to determine the ad format which loads faster.
  • Shopping Ads: This ad format is suitable for advertisers having a large inventory. This ad format showcases the image of the product, title, price, store name etc.
  • Call only Ads: If most of your business transactions initiated via phone call, then this ad format is what you need. Business phone number is shown in the headline of the ad. When a user clicks on the ad, the call is connected to your business directly instead of loading your website. Note that this format is available only on the devices which can make a phone call.

Above mentioned are the widely used ad formats. With the evolution of AdWords, Google is introducing new ad format very frequently. Choose the right format for your business and make compelling ads.

How to Structure an AdWords Account?

Now that you have a decent understanding of what is Google Adwords, its time to learn how to use Google AdWords. It is very crucial learn to structure your AdWords account duly to get the maximum benefit of AdWords. In order to organize the account, AdWords has 3 levels: 

What is Google AdWords

Google AdWords Account

The pulse of an AdWords Account is its keywords. Keywords form the base of your account. Google AdWords has a very handy tool to discover the most important keywords for your business called as “Keyword Planner”. This tool gives you the plethora of keywords based on the information you have provided such as sample phrase/keyword, product/ service, website or category of business. Once the set of keywords are ready, it’s time to organize the account.


Every campaign should have a unique objective. A campaign has to be created for every product or service your business offers. A campaign consists of a collection of ad groups. Following settings are available at Campaign level;

  • Type of campaign such as Search Only Campaign, Display Campaign, Search with Display select, Call Only Campaign etc.
  • Budget allocation
  • Geographical location where you want ads to show
  • Type of bidding strategy
  • Other top-level settings which affect all the ad groups under the campaign

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Ad Group

Ad Group consists of a set of keywords and ads. There is more than one way to structure your ad groups. Some of the widely followed methods are;

  • Structure ad groups based on the set of keywords having similar theme
  • Structure ad groups based on the subcategory of product or service
  • Structure ad groups based on the different location where you want to show ads

Well organized ad groups help you to serve most relevant ads for the search query.


Keywords are the foundation of an AdWords account. Keywords are grouped into Ad groups based on their theme. It is impossible to list all the exact keywords your customers search in the account. Hence, Google AdWords has given various keyword matches to ensure to reach as broad or as specific audience as you want.

A bid is the amount you are willing to pay to Google for every click or 1000 impression (based on the bidding strategy selected at campaign level) of your ad. Bidding is done at the keyword level. To help you start with bidding, keyword planner tool provides you with a suggested bid for every keyword.


Every ad group can have more than 1 variation of an ad. Based on the type of campaign, various ad formats are made available. It is advisable to have at least 3 ads per ad group and keep optimizing the performance of ad groups by experimenting with new ads copies. Google has a very stringent ad policy which an advertiser needs to abide. Every ad is reviewed by AdWords before publishing. 

Let’s look into an illustration of structuring an AdWords account: 

Imagine you have a boutique where you sell shoes and bags for men and women.

What is Google AdWords?

Google AdWords Account

How Google AdWords Works?

In order to have a distinct understanding of what is Google AdWords, it is very crucial to know how Google AdWords works. When you search on Google, most often you will be shown 4 ads on top of the page. These 4 ads have defeated other competitors in the ad auction to secure their position. Let’s explore how AdWords work: 

What happens in Adwords Auction?

Every time a search happens in Google, AdWords takes into account all the advertisers who are bidding on the keyword and calculates Ad Rank for the keyword.

Ad Rank = Quality Score of the Keyword x Bid

Quality Score is the aggregate score given to a keyword based on 3 factors; Ad relevancy to the search query, landing page experience and expected click-through rate (CTR).

Those ads which are above the ad rank threshold are selected to be shown in the search result. The Position of ads are decided based on the ad rank – the first position to the highest ad rank & last position to the lowest ad rank.

Fair Enough!

How much do you pay to Google AdWords?

Through bids, you indicate Google AdWords, the maximum amount you want to pay, but that is not actually you pay. Most of the times it is less than your bid. The amount you pay to AdWords for every click is just enough to hold your position from your next competitor.

Let’s understand this practically;

Position QS Bid ($) Ad Rank Actual CPC
1 7 20 140 19.1
2 9 15 135 13.1
3 6 30 120 27.1
4 4 18 108 18

 Actual CPC = (Ad Rank of the advertiser below you / Your Quality Score) + $0.01

In the above illustration, every advertiser is paying less than the actual bid (Except the advertiser in the last position). Lower the ad rank of your competitor and higher your quality score, lower you pay to AdWords.

Benefits of Advertising Online with Google AdWords

Advertisers have been exploiting Google AdWords since 2000 and benefiting their business enormously. There are numerous benefits of advertising on AdWords. I have narrowed down the top 4 benefits on my list;

Measure Everything

You have placed a billboard in the 2 most happening locations of your city. Now there is a leap in your sales, great! But, you are not sure which location’s billboard is driving your sales, is it location1 or location2 or both or none? With conventional marketing, these questions are always unanswered!

In AdWords, every action is measurable. Right from impressions, clicks, time spent on your website, conversion etc. It is very important to channelize your marketing budget in the right direction. With AdWords, you can easily measure and take a data-driven decision to optimize your performance and increase your ROI

Capture Right Audience at the Right Time

Let’s take the billboard example again. You are into the business of denim, you want to capture the attention of the young crowd. You decide to place the billboard in a location where most of the colleges of your city are located. That’s it, you can’t-do anymore targeting.

In AdWords, you can capture the denim seekers (Right Audience), when they are searching for denim to purchase (Right Time). This gives an immense targeting option to advertisers to offer their product to the right audience at the right time.


A user surfed for t-shirt section on your website and left the website without buying the product. With AdWords’ Remarketing campaign, you can retarget this user with a customized ad showing the new arrivals of t-shirt or offer a special discount. In this way, you can re-engage the user and increase your chance of conversion.

Reach Potential Customers on Display Network

Advertisers can reach a more qualified audience on Display network with advanced targeting features such as custom affinity audience and in market audience. Web users are categorized based on their internet behavior into different categories. Advertisers can select a relevant category or customize their own category to target the audience. For example, let’s say I am reading about upcoming cricket matches, cricket scores, watching cricket on internet, there is a high chance that I can see an ad which is selling customized cricket t-shirts.

Google AdWords benefits are many. You might discover a new benefit every day. The key for success in AdWords is effective utilization of the platform, measurement of the performance and data-driven decisions.

With having complete knowledge of what is Google AdWords, you should also be aware of what is Google AdWords Express.

At the end, hope this Google AdWords tutorial has given you the answer for What is Google AdWords? and How Google Adwords Works?

Photo Credits: Wordstream, adnabu, thrivesearch

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  1. Aparna P

    Does Google Adwords works on AI ?

    • Sowmya Nagarad

      Hi Aparna. To an extent, yes Google Adwords work on AI with its display targeting options such as in-market audience, affinity audience etc. Recently in its Google Marketing Next event, Google has announced its roadmap for 2017 which includes a lot of AI integration such as in market audience for search, life event targeting etc. You can find more information here; https://searchengineland.com/adwords-2017-roadmap-loaded-artificial-intelligence-276303


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