AdWords: How it Really Works

AdWords is an online advertising tool developed and run by Google that allows companies to display their ads on Google’s search results for a fee. They are short advertisements that consist of one 25 character headline and two additional lines of 35 characters each.

AdWords has become Google’s main advertising platform and main source of revenue, accounting for 65 percent of their income in 2016. Considering that over 80 percent of internet searches are performed using Google, research has shown that big companies invest heavily in search traffic. Most companies look to Google for their advertising needs due to their cross platform model.

How does it work for advertisers?

AdWords helps companies connect with new customers searching for products or services similar to theirs. Unlike traditional advertising methods such as television or radio, with AdWords, companies are only charged a fee if users actually click on their ad and visit their website.

This is known as “Cost-per-click” or simply CPC. Using this “Cost-per-click” method, companies can start with a small budget, gage how many new customers they are gaining from their ad, and increase their budget over time. This allows them to control their advertising budget better. Of course, the higher the “Cost-per-click” the higher up on the search results page their ad will be displayed.

There are several match options available to advertisers. The first one, Broad match, shows their ad any time their keyword is searched for by a user, which of course, reaches the most users. This option is a smart way to go as it will even show their ad if the user’s search has misspellings. It will also show synonyms and other variations of the words search for by the user. Another variation of this option is the Broad match modifier, which will show variations of the keywords but not synonyms.

The second option, Negative match, will prevent their ad from showing up on a user’s search results when a keyword or phrase they specify is not included in the keywords searched for by the user. The third option, Phrase match, is shown only when a user’s search phrase or close variations of it match the company’s keyword phrase. Finally, the last option, Exact match, only shows their ad if the user’s keywords match the company’s keyword phrase exactly.

The keywords they use in the ads they show is crucial – when selecting the wording for their ad they need to pay close attention to any competitors’ ads as their competitors’ will be shown right next to theirs. So when choosing their keywords they should really put themselves in their customers’ shoes.

Google offers several tools for companies to manage their ads. For customers having difficulty coming up with keywords that work, they offer a tool called Keyword Planner to help them come up with the appropriate keywords to use in their ads. In addition, customers can run a report to see the keywords users used to arrive at their ad.

How does it work for users?

Any time a user does a search in Google, the keywords they search for are checked against the keywords selected by companies using the AdWords service and the matching results are shown on the top and/or right side of the search results page. Many users, up to 40 percent, don’t even know AdWords are advertisements.

Even though the ads are shaded a different color than the regular search results, many users don’t even know what that means – they don’t even know that the top results listed on the search results page are advertisements. This is good for both Google and the company running the ad – by a user clicking on the first result it generates revenue for Google and gets a potential customer to the company running the ad.

As you can see, AdWords has become one of the biggest online advertising tools, connecting customers with the products and services they are seeking.

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