Wired has a collection of articles on Google. “Today Google’s a library, an almanac, a settler of bets. It’s a parlor game, a dating service, a shopping mall. It’s a Microsoft rival. It’s a verb. At more than 200 million requests a day, it is, by far, the world’s biggest search engine. And now, on the eve of a very public stock offering, it’s cast as savior, a harbinger of rebirth in the Valley. How can it be so many things? It’s Goooooooooogle.”
One of the sections deals with Google’s primary revenue source – advertising:
At the heart of the new Google is AdWords, a self-service ad server that uses relevance-ranking algorithms similar to the ones that make the search engine so effective. Advertisers tell Google how much they want to spend, then “buy” pertinent keywords. When users type in a matching term, the ad appears near the search results under the heading “Sponsored Links.” Each time a user clicks on the ad, Google subtracts the cost-per-click from the advertiser’s account. When the account’s daily budget is met, Google stops displaying the ad.
So far the system has proven easy to use and remarkably effective. Roughly 15 percent of ads displayed adjacent to Google searches (at the company’s own Web site and on Google-powered sites like Yahoo! and AOL) result in clickthroughs – more than 10 times the click rate of the average banner ad. These clickthroughs are the golden leads of online commerce. One Dow Chemical business group reported 25 percent of its traffic comes through Google. Designer Hospital Gowns, a health care industry Web site, boosted sales 20 percent in six months.
AdWords has worked so well that last year Google began offering the system to other sites as a way for them to provide targeted ads. The new service, AdSense, places ads on Web sites of all stripes, from ABC.com and The New York Times on the Web to quirky blogs like Bananathing!
Pinpoint targeting has always been the goal for advertising, but has been unattainable for a couple of reasons. First, content providers have rarely been able to deliver to marketers enough well-described and narrowly focused consumers. Second, even when marketers get the perfect audience, they rarely have targeted ads; it costs too much to make multiple variations for micro-audiences. AdSense strips away these barriers.
Using Google’s relevance-scoring algorithms, AdSense determines ad placement by analyzing the content of Web pages. The system delivers advertisers to the right niche publishers – and vice versa – automatically. What’s more, it allows those advertisers to customize their ads for free. And because Google has a vast inventory to choose from, there’s almost always a well-targeted ad to serve. No human has to intuit what’s going to work for what audience; the stats pick the best match.