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Some contend that pay-per-click or PPC advertising is the engine that drives most e-commerce traffic online. To be fair, they have some compelling evidence. Google is one of the most powerful and valuable companies in the world, and while many people believe they are a technology or a search company, the truth is they are an advertising company. They still make 71% of their revenue with clicks, a few cents or dollars at a time.
When AdWords was launched in 2000, Google's vision was built around their search engine. The theory was fairly simple to take advantage of their other technologies. In short, Google found a way to monetize the web and amplified the power of their system by making AdWords available to everyone.
If you are running an e-commerce store, and you are looking for ways to drive traffic to your site, pay-per-click advertising on Google AdWords and getting advice from experienced PPC consultants are quality choices. Here are some things to consider.
Marvel Entertainment built its success and value on something called the character equity engine. The theory is that a character becomes more valuable depending on how it's exploited commercially. The action figure isn't what ultimately builds all the value, but rather the product combined with promotions, ads, and retail sales. All of these things feed back into the character's “equity,” making it more valuable.
Google uses a similar system to make its advertising platform and, by association the products they sell, more valuable to its audience. For Google, the search results are the equity. The idea behind AdWords is that anyone that performs a search is by definition interested in that subject. If an ad could be presented to that user at the same time they are searching, chances are higher the user will click on that ad. If they find a product they are looking for, then the advertiser gets rewarded. Google makes money on the click from their site, and the user is happy because they found what they were looking for. All of these things combine to make the search results more valuable.
This model was later extended through a network of ads that appear on various sites around the web, each keyed to a topic that matched the interests of those who might click on the ad. The value proposition for these publishers was very similar to that used to attract users to search. Google will put ads on your site that matches your content. If someone lands on your site, often through search results, chances are they are interested in that topic and there is a higher chance they will click on those displayed ads. The Google display network now reaches more than 90% of Internet users across millions of sites.
Experienced PPC consultants will tell you the reason this elaborate system is so valuable for advertisers is that it requires businesses to focus their advertising on the keywords, key phrases and topics that are likeliest to produce results. A keyword or key phrase is a word or words meant to match a particular set of search results. For example, the word “surfboard” would cause an ad to be presented to someone searching for a surfboard or various combinations of phrases including the word surfboard. The key phrase “cheap surfboard” on the other hand, would cause ads to be presented to users that included both words, and are more targeted to what the shopper is looking for.
There is an enormous number of combinations of keywords and key phrases. The goal of any advertiser is to find a match for their site, their landing page, and their products. If they succeed, the theory of targeted PPC advertising holds that the people responding to those ads are already interested in the topic, therefore they are more likely to buy when they arrive.
Each time an ad is clicked, the advertiser pays. This rate is set through a mutual agreement between Google and the advertiser based on the maximum amount the advertiser is willing to pay. Ads are sold through an auction system which is based both on the amount an advertiser bids and based on the quality of the advertiser's ad copy, site, conversion, click-through rate and a host of other factors.
With PPC ads, it is vitally important that advertisers are aware of their conversion rate. A conversion rate is the proportion of people who buy after clicking on an ad. The second important number is the margin in the product being sold. The basic equation demands the price of the product exceeds the amount spent to sell it. So if ads are being clicked at a rate of $1.00 each, and the conversion rate is ten percent, that means the product must be priced at $10.00 or more, otherwise the advertiser is spending more on ads than they are making on each sale.
Pay-per-click advertising has been adopted by a number of other large technology companies, and Google used their AdWords system to build one of the most valuable companies in the world.
The key to making the system work for any particular set of products or services is to understand the equity proposition, understand the relationship between conversion and pricing and to continually optimize ads, keywords and key phrases until the right combination of the ad, landing page, product, and price are discovered. This often requires a great deal of analysis, a fair amount of record-keeping and constant adjustment. Often what works one day will fail the next and might start working again later. Advertising is not yet a science, but products like AdWords are getting businesses closer to the point when they can be confident in the power of their digital marketing and can quickly begin generating revenue.