The Search Engine Business Model
Advertising
Copyright Ellis Horowitz 2011-2022
Types of Online Advertising
• Banner Advertising
– The earliest form of online ads
– People have developed “banner blindness”
• Pay-per-click Advertising
– Introduced by search engines Yahoo/Google/Bing/etc
• Website Advertising
– Place ads on blogs/newsletters/websites that typically attract the customers you
are aiming at
• Affiliate Marketing/build a platform and they will come
– Let third party sites advertise your goods/services and give them a commission
– Amazon ([Link]
– Ebay ([Link]
• Social Media Marketing
– The use of social media platforms (e.g. Facebook, Instagram, TikTok) and
websites to promote a product or service
Copyright Ellis Horowitz, 2011-2022 2
How Big is
Search Engine Advertising
Google/Alphabet earned more than $257 billion in 2021
Alibaba earned $109 billion in 2021
Yahoo earned $4.6 billion in 2019
(Verizon has purchased Yahoo for $4.5 billion in 2015)
Bing, a division of Microsoft earned $7.7 billion in 2021
Baidu earned $5.9 billion in 2021
Google and Baidu Stock History
Copyright Ellis Horowitz 2011-2021
Snapshots 10/2021
Positional Bias is Very Strong
A google result page showing
where people looked and where
people clicked
Eye pupil
hotspots
See
[Link]
X marks
the clicks
Copyright Horowitz 2007-2022 4
Estimating the Value of
Rank in a Sponsored List
• A survey worked by examining click data from AOL, HitWise and Overture yielding
statistics about how often a user clicked on the first search result, second search result,
etc.
• Total Searches: 9,038,794
• Total Clicks: 4,926,623
• Ranking Number 1 receives 42.1 percent of click throughs.
Ranking Number 2 receives 11.9 percent of click throughs.
Ranking Number 3 receives 8.5 percent of click throughs.
Ranking Number 4 receives 6.1 percent of click throughs.
Ranking Number 5 receives 4.9 percent of click throughs.
Ranking Number 6 receives 4.1 percent of click throughs.
Ranking Number 7 receives 3.4 percent of click throughs.
Ranking Number 8 receives 3.0 percent of click throughs.
Ranking Number 9 receives 2.8 percent of click throughs.
• Ranking Number 10 receives 3.0 percent of click throughs.
Copyright Ellis Horowitz, 2011-2022 5
THE MILLION DOLLAR QUESTION
Q. How do I get to number one in Google search results?
Google’s organic
search results are
produced by a
proprietary algorithm
that is often being
changed, so there are
never any guarantees
that someone will
continue to be highly
ranked
But there are lots of
people ready to give
you advice Copyright Horowitz 2007-2022 6
Search Engine Optimization
• There is an industry of companies whose focus is to develop and refine a company’s
online presence;
– They are called Search Engine Optimizers
• Search Engine Optimization (SEO) involves:
– Making pages show up higher in search engine’s organic results
– Optimizing content to target certain keyword phrases
– Developing web page content that responds to each seeker’s interests
• There are many companies who claim to do SEO
– For a list see [Link]
– Generally they are “small” companies, earning under $10 million per year
Recent Google
horizontal card-style
view
Copyright Ellis Horowitz, 2011-2022 7
THE MILLION DOLLAR ANSWER
Q. How do I get to number one in Google?
A. Use paid search
Paid search is one
answer; Google and
many other search
engines use the
pay-per-click (PPC)
model of advertising;
Pay enough for a click
and you can pretty much
guarantee to get a top
spot on the list of ads for
your chosen keywords
Copyright Horowitz 2007-2016 8
Lets Take a Close Look
at Google Adwords
Renamed as Google Ads
Google’s program for
accepting pay-per-click
ads.
Its home page is
[Link]
For every keyword phrase
there is an auction where
bidders agree to pay a
certain amount to Google
if their ad is clicked on;
Copyright Ellis Horowitz, 2011-2022 9
Campaigns Begin By Choosing Keywords
Google Keyword Estimator
For specific keywords Google provides the approximate cost
per click and the resulting position in the list, and other stats
Copyright Horowitz 2007-2015 10
Copyright Ellis Horowitz 2011-2021
Long Tailed Keywords
can be Valuable
• Long-tail keywords are search queries made up of three-four word phrases that are
very specific to a product, good, or service that’s being sold.
– Long-tail keywords are the phrases search engine users are generally more
likely to type in when they’re closer to purchasing an item.
• The conversion rate for long-tail keywords
is approximately 2.5 times higher
than it is for head (shorter) keywords.
• long-tail keywords that present less competition
also offer lower cost-per-click prices since
few marketers are targeting them
Copyright Ellis Horowitz, 2011-2022 11
Your Keyword Phrases Should be
Mapped on Your Website
§ Use key phrases in the content on your page
§ Develop metadata that includes key phrases in:
§ TITLE tags
§ Meta Description and Keyword tags
§ ALT tags
§ Name directories, files and images with the same key words or phrases
Notice how folder names
§ Query: “Levi’s men’s clothing jeans” mimic the data they contain
§ produces the URL
§ [Link]
§ Query: “Ladies handbags”
§ [Link]
Copyright Ellis Horowitz, 2011-2022 12
Advertisers Designate
Keyword Matching Rules
• The advertiser will specify the type of matching to
be done against his keyword phrases
– Four types of keyword matching options can help you
refine your ad targeting
1. Broad Match
2. Exact Match
3. Phrase Match
4. Negative Keyword
Copyright Ellis Horowitz, 2011-2022 13
Keyword: Broad Match
• A broad match is the default option
– When you include keyword phrases like "tennis shoes" in your keyword list,
your ads will appear when users search for "tennis" and "shoes", in any order
(and possibly along with other terms)
• Broad Match ads may also show for expanded matches, including synonyms
and plurals
– Google will analyze your keyword list, ad text, and daily Google search queries,
and show your ads for relevant terms and variations (such as "tennis sneakers")
• Even if you didn't include these terms in your keyword list
• Broad matches are often less targeted than exact or phrase matches
– If you decide to run your ads on broad-matched keywords, create keyword
phrases containing at least two descriptive words
[Link]
Copyright Ellis Horowitz, 2011-2022 14
Keyword: Exact Match
• The search query must exactly match your keyword
– Originally Exact Match meant that "tennis shoes" would only match a user request
for "tennis shoes" and not for "red tennis shoes," even though the second query
contains your keywords
– However, Google now includes rewording and reordering for exact match
keywords
– Exact match will now ignore function words (in, to), conjunctions (for, but),
articles (a, the) and other words that don’t impact the intent of the query
– [Link]
[Link]
Copyright Ellis Horowitz, 2011-2022 15
Keyword: Phrase Match
• Your ad appears when users search on the exact
phrase
– AND when their search contains additional terms
• As long as the keyword phrase is in exactly the same order
– A phrase match for "tennis shoes" would include "red tennis
shoes" but not "shoes for tennis"
[Link]
Copyright Ellis Horowitz, 2011-2022 16
Keyword: Negative Keyword
• Negative keywords allow you to eliminate searches
that you know are not related to your message
– If you add the negative keyword "–table" to your
keyword "tennis shoes," your ad will not appear when a
user searches on "table tennis shoes“
• Negative keywords should be used with caution, -- they can
eliminate a large portion of a desired audience if applied incorrectly
[Link]
Copyright Ellis Horowitz, 2011-2022 17
A Sample Google Ads
Campaign Screen
• Ads advertisers create advertising campaigns
– There are two campaigns defined above
• Each campaign has a set of keyword and associated ads, and includes
– a budget, recorded clicks, recorded impressions, click thru rate, average
cost/click, and total cost of the campaign
Copyright Ellis Horowitz, 2011-2022 18
Capabilities of
Search Engine Ad Servers
• The typical common functionality of ad servers includes:
– Uploading the creative (creative is the term used to describe the ad that will appear)
– Maintaining business rules for placing ads
– Targeting ads to different users or content
– Optimizing appearance of a set of creatives based upon results (choosing the most effective
ad)
– Reporting impressions, clicks, post-click activities, and interaction metrics.
• Advanced functionality may include:
– Frequency capping creatives so users only see messages a limited amount of time.
– Sequencing creatives so users see messages in a specific order (sometimes known as
surround sessions.
– Excluding competitive creatives so users do not see competitors' ads directly next to one
another.
– Displaying creatives so an advertiser can own 100% of the inventory on a page (sometimes
known as roadblocks).
– Targeting creatives to users based on their previous behavior (behavioral marketing or
behavioral targeting).
Copyright Ellis Horowitz, 2011-2022 19
Search Engine Ad Servers
are Versatile
• Advertisers with accounts on Google’s Ads can define a set of criteria for
placement of their ad; typical criteria might include rules such as
– Only display my ad
• from 9:00AM-5:00PM EST
• once/day
• if the viewer is located in the United States
– dayparting is a technique that involves increasing your bids during times when
conversion rates are typically above average, and decreasing them when rates
are typically below average
Increase bids during
above average
Decrease bids during periods
below average periods
Historical Conversion Rates by Time of Day
2.5
%
2.0
%
1.5
%
Average Conversion Rate
1.0
%
0.5
%
00.00 06.00 12.00 18.00 24.00
Copyright Ellis Horowitz, 2011-2022 20
Google Ads
Auction Rules
• Each bidder specifies (i) search terms that trigger its bid and (ii)
the amount to bid for each search term.
– Bidders may also establish an overall ad budget and limits for each kind
of bid.
– Google may set a reserve or minimum price for each term.
• Google estimates the “click-through rate” that each bidder would
have if it were listed in the first spot.
– Ads with very low click-through rates are not displayed.
– Google ranks bids by multiplying the click-through-rate and the bid
amount.
– Ads are displayed in rank order.
• Google is paid only when an ad gets clicked.
– In that case, the price it receives is the smallest price the bidder could
have bid to get its ranking.
Copyright Ellis Horowitz, 2011-2022 21
How does AdWords bidding work?
• The actual position of your ad is determined by your ad rank (Maximum
Bid multiplied by the Quality Score).
• The highest ad rank gets the 1st ad position.
• Your actual CPC (cost per click) will be determined by the ad rank of the
next highest ad below you
• Exception: when you are the only bidder or the lowest bid in the Ads
auction; then you pay your maximum bid per click!
• Ads bidding heavily penalizes advertisers who bid with low quality scores.
Conversely, those with high Quality Scores get higher ad ranks and lower
CPC
• The average cost per click on Ads varies by keyword and industry, but is
roughly $2.00 on the search network and $0.58 on the display network
Copyright Ellis Horowitz, 2011-2022 22
Some Facts About
Online Advertising
• [Link]
industry-benchmarks
• A study of over 14,000 US based clients in multiple markets
• The average click-through rate in Ads across all industries is 3.17% for
search and 0.46% for display ads
– How often people click on your ad versus how often it is displayed
• The average cost per click in Ads across all industries is $2.69 for search
and $0.63 for display
• The average conversion rate in Ads across all industries is 3.75% for
search and 0.77% for display
– How often a click on an ad leads to a sale
• The average Cost Per Action (CPA) in Ads across all industries is $48.96
for search and $75.51 for display
– Refers to a specific action such as a sale, click, or form submission
GDN refers to the Google Display Network where ads are placed on 3rd party websites
Copyright Ellis Horowitz, 2011-2022 23
Average Click Thru Rate
by Industry
Bars in order:
• Advocacy
• Auto
• B2B
• Consumer services
• Dating and personals
• E-commerce
• Education
• Employment services
• Finance & insurance
• Health & medical
• Home goods
• Industrial services
• Legal
• Real estate
• Technology
• Travel & hospitality
Copyright Ellis Horowitz 2011-2021
Second Price Auction
Using Only Bid Amount
• In a First-Price Auction if your bid wins, you pay exactly what you bid. This
maximizes revenue potential for the seller.
• A Second-Price Auction is a digital buying model where if your bid wins, you pay
$0.01 above the second highest bid in the auction.
• In this type of auction, it is in your best interest to bid the highest amount you are
willing to pay, knowing that often you will end up paying less than that amount.
• Bidder 2 is ranked 1st
Bid2: ($9) – Pays $6+1¢=$6.01
Bid3: ($6) • Bidder 3 is ranked 2nd
Bid1: ($5) – Pays $5+1¢=$5.01
Let P(C) be the Probability
of the Ad Being Clicked
Bid2: $9 P(C)=0.1 $0.9
Bid3: $6 P(C)=0.1 $0.6
Bid1: $5 P(C)=0.4 $2.0
P(c) can depend upon: Expected
• Historical click performance of the ad
• Landing page quality Revenue
• Relevance to the user
• User click through rates
Expected Revenue = Bid amount X Click Probability
So the ad with highest bid does not necessarily produce
the most revenue
Google Ranks Ads by the Product of
Bid Amount*Click Probability
Bid1: $5 P(C)=0.4 is placed 1st
Bid2: $9 P(C)=0.1 is placed 2nd
Bid3: $6 P(C)=0.1 is placed 3rd
Ad Rank= Bid X Click Probability
Return On Investment:
What is Each Conversion Worth?
Copyright Ellis Horowitz, 2011-2022 28
Improved Conversion Rate
Copyright Ellis Horowitz, 2011-2022 29
AdSense
• AdSense from Google is a service for placing Google ads on third party web pages
• Google purchased the content matching technology from Oingo, a small Santa
Monica-based search engine in 2003 for $102 million
• The program is designed for website publishers who want to display targeted text,
video or image advertisements on their website pages and earn money when site
visitors view or click the ads
• Typically Google keeps 32% of the ad revenue and returns 68% to the website
developer
• In addition to cost-per-click ads, Google also offers
– Cost per Thousand displays, CPM
– Cost per Engagement, where advertisers only pay when users actively engage
with ads, e.g. hovering over them or expanding them or reviewing the landing
page for more than a few seconds
• Typically blogs use AdSense to monetize their site
Copyright Ellis Horowitz, 2011-2022 30
How AdSense Works
1. The webmaster inserts the AdSense JavaScript code into a webpage.
2. Each time this page is visited, the JavaScript code uses inlined JSON to display
content fetched from Google's servers.
3. Google's servers use a cache of the page to determine a set of high-value keywords.
Ads are served for those keywords based on the AdWords bidding system.
4. For site-targeted ads, the advertiser chooses the page(s) on which to display ads, and
pays based on CPM, or the price advertisers choose to pay for every thousand
advertisements displayed.
5. Search ads are added to the list of results after the visitor performs a search.
6. To protect against fraud, AdSense customers can specify the pages on which ads
should be shown. AdSense then ignores clicks from pages other than those specified.
Copyright Ellis Horowitz, 2011-2022 31
AdSense Ads on Websites
are Not Always Relevant
Google’s AdSense program
claims to place ads
on third-party websites,
where the ads are relevant
to the site’s content;
Each time a visitor visits a page
with an AdSense tag, a piece of
JavaScript writes an iframe tag,
whose src attribute includes the
URL of the page. Google's
servers use a cache of the page
to determine a set of high-value
keywords.
Above, an article about Michael Jackson includes an irrelevant ad about payday loans
Copyright Ellis Horowitz, 2011-2022 32
Adsense Content Matching
Originally Based on WordNet
• AdSense technology is based upon a database of word meanings
initially developed at Princeton, called WordNet
– [Link]
• WordNet is a semantic lexicon for the English language. It groups
English words into sets of synonyms called synsets, provides short,
general definitions, and records the various semantic relations between
these synonym sets.
– The purpose is twofold:
1. to produce a combination of dictionary and thesaurus that is more
intuitively usable, and
2. to support automatic text analysis.
Copyright Ellis Horowitz, 2011-2022 33
AdSense Code
• Google AdSense creates the code, which the publisher copies and pastes into a web page or
blog post at the point where it is to appear.
• This is an example of AdSense code for a 728-by-90-pixel ad. Google assigns the numbers
following "google_ad_client" and "google_ad_slot."
• <script type="text/javascript"><!--
google_ad_client = "xxxxxxxxxxxxxxxx";
/* 728x90, created 10/28/08 */
google_ad_slot = "xxxxxxxxxx";
google_ad_width = 728;
google_ad_height = 90;
//-->
</script>
<script type="text/javascript"
src="[Link]
</script>
• When a webpage containing this code is displayed, AdSense counts the page visit. If the visitor
clicks on the ad, s/he is redirected to the advertiser's website, and Google counts the click and
credits the AdSense publisher's account
• Payments for clicks on ads range from a few cents to several dollars.
Copyright Ellis Horowitz, 2011-2022 34
Sample Google Conversion Code for
Tracking Purchases/Sales
• Google/Yahoo offer tracking pixels
• Tracking pixels are small, typically transparent images on a web page that have special names which
permit the loading of the web page to be tracked by a web server.
<!-- Google Code for purchase Conversion Page -->
<script language="JavaScript" type="text/javascript">
var google_conversion_id = 1072192880; The code is inserted
var google_conversion_language = "en_US"; into a page; an external
var google_conversion_format = "1"; Javascript file is imported;
var google_conversion_color = "666666"; A small image, a pixel,
if (1) { var google_conversion_value = 1; } is placed on the page;
var google_conversion_label = "purchase"; When the page is requested,
</script> Google records the access
<script language="JavaScript"
src="[Link] </script>
<noscript>
<img height=1 width=1 border=0
src="[Link]
=1&label=purchase&script=0"> </noscript>
Copyright Ellis Horowitz, 2011-2022 35
Google AdSense, AdMob Moves
to a First-Price Auction Model
• First-price vs. second-price auctions
– In a second-price auction, the final price paid by the winner is determined by the
second-highest bid.
– In a first-price auction, the final price is the same as the winning bid.
• This change applies to AdSense, Ad Manager and AdMob
• AdMob is a mobile advertising company founded by Omar Hamoui. The name
AdMob is a portmanteau for "advertising on mobile”
• Showing ads to app users allows app developers to create a sustainable
source of revenue
• Ads are created and paid for by advertisers who want to promote their
products or services to app users. Once you create space for ads in your app,
AdMob works with advertisers who pay to show ads that are relevant to
your users
Copyright Ellis Horowitz, 2011-2022 36
Ad Exchanges and DoubleClick
• An ad exchange is a technology platform that facilitates the buying and selling of
media advertising inventory from multiple ad networks.
• Prices for the inventory are determined through technology-driven bidding
• The key function of an ad network is aggregation of ad space supply from
publishers and matching it with advertiser demand
• DoubleClick Ad Exchange is a real-time marketplace owned by Google for buying
and selling advertising
– In 2018 Google changed the name of DoubleClick to Google Ad Manager
Watch “The Social Dilemma” documentary on NetFlix
[Link]
Copyright Ellis Horowitz, 2011-2022 37
Copyright Ellis Horowitz 2011-2021
Today’s advertising model
Trackers
Publishers Advertisers
Broker (Ad
exchange)
The cast of players
Client
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
Broker (Ad
exchange)
Trackers track users
Compile user profile
Client
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Broker (Ad
exchange)
Trackers may share
profiles with advertisers?
Client
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Broker (Ad
exchange)
Client gets
webpage with
adbox
Client
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Client tells Broker (Ad
broker of page exchange)
Client
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Broker (Ad
exchange)
Broker launches auction
(for given user visiting
given webpage ….)
Client
Also does clickfraud etc.
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Broker (Ad
exchange)
Advertisers
Client present bids
and ads
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Broker (Ad
exchange)
Broker picks
winners,
Client
delivers ads
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Broker (Ad
exchange)
User waits for
Client this exchange
Copyright Ellis Horowitz 2011-2022
Trackers
U
U
Publishers U Advertisers
U
U
U
Broker (Ad
exchange)
Various reporting
of results . . . .
Client
Copyright Ellis Horowitz 2011-2022
How an Advertising Network
such as DoubleClick Works
Copyright Ellis Horowitz, 2011-2022 49