How Bids and Clicks Work

December 6, 2006 at 9:20 am Leave a comment

Search Engine Marketing or SEM is one of the most important feature of the overall online marketing activity for any successful website. The Search Marketing has gone way beyond the traditional pay-per-click campaigns offered by Overture a few years ago. Earlier it was a very simple and static process, bid for the position on any specific keyword and get that position. This was giving benefit to “not so relevant” websites who can afford to bid higher for any keyword without focusing on the customer needs. Google has changed the way search marketing was being done traditionally. Recently I came accross a very important report released by IAMAI and Pinstorm. Click more to ready the dynamics of Search Marketing


Search engines aggregate audiences clicks that are pin-point addressable by their search patterns at the time they’re searching.Search engines then turn around and sell these audiences to marketers. The most common way is through the ‘click’. A click on your ad on a search result page takes a user away from the search result and on to your page and this ‘click’ is what you pay for.

Search engines charge on a ‘pay-per-click’ basis. Compared to traditional media, which charges by the ‘eyeball’ or the

viewer, search takes it a step further – to charge by the person who has shown interest in your offering by leaving the search result page and coming to your web site.

In the AIDA process search gets beyond‘Awareness’, and to someone who shows ‘Interest’.

Now to the ads on a search result page. Typically the first ad gets more clicks than the second, which gets more than the third and so on.

Instead of setting a flat-fee per click or per position, the big difference was to ‘free float’ the price per click to a market bidding process. So if Hotel X,Hotel Y and Hotel Z all wanted their sponsored links to appear on a search for ‘hotel

room in Bombay’, the search engine basically says “it’s up to you guys – I’ll put whoever offers me most per click on top.” The truth is a little more complex,involving click-through rates and landing page quality, but this explanation is broadly correct.

To make it more accurate, three more factors play a role in determining your position among the sponsored links. The actual number of clicks you generate is one. For instance if you’re bidding at $0.50 a click and getting 30 clicks a day, and your rival is bidding at $1 a click and getting 12 clicks a day, you are generating $15 a day for Google. while he generates $12 so your ad will be promoted above his.

This is further complicated by Google’s automated measurement of ‘landing page quality’. Google spiders the page you intend to send users to and gives a preference to actual fully-built sites with good PR instead of single-orphan-page landing sites with just a form. So if your landing page is ‘more useful’ to the user, you get a preference over a ‘blank page with a form’ that your rival has. The third differentiator is history or the ‘incumbent advantage’ if you’ve historically been performing at a particular position, then Google gives you an advantage over a Johnny-come-lately who has to outspend you on the same keywords to even come up to the levels you are at.

This process of ‘bidding’ has been a boon for search engines getting them huge revenue growth and it has allowed companies to get the positions they want on the search terms they want, by simply out-bidding the competition. Typically, bidding starts at US$0.05 per click and goes up from there. Per-click bids of up to US$50 have been seen on some search terms from some geographies.

With this huge range of bids (a 1000x difference between the top and the bottom of the range) it is important for a search advertiser to keep tight control on what they’re paying for. Because the price for an ad is not set by the medium but by your competition, it is easy to overspend. Hence it is critical for an advertiser to find search terms that are relevant to their consumers but that other advertisers have not discovered yet.


Entry filed under: SEO - Search Engine Optimization.

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