How Google's Money-Making Machine, AdWords, Actually Works

Google Adwords

Google makes 97% of its revenue from advertising. The majority of that comes from search advertising, which Google sells in a product called AdWords.

The basics of AdWords are pretty easy to understand. Advertisers bid on search keywords (like “insurance”). Google looks at the bids and the quality of the page the advertisement links to. Then, it combines the bid with the quality score to figure out which ad to place on top.

But how much do advertisers actually pay? How important is the quality score versus the price of the bid? How does Google determine that quality score? If you’re not in online publishing or advertising, you probably have no idea.

WordStream offers tools for advertisers to navigate AdWords and other online advertising systems. They sent us a useful infographic (PDF here) showing exactly how Google AdWords works. Particularly interesting: advertisers don’t always pay the amount they bid, and the highest bidder doesn’t always win.

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