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Pay-per-click is commonly associated with first-tier search engines (such as Google Ads, Amazon Advertising, and Microsoft Advertising formerly Bing Ads). With search engines, advertisers typically bid on keyword phrases relevant to their target market and pay when ads (text-based search ads or shopping ads that are a combination of images and text) are clicked. In contrast, content sites commonly charge a fixed price per click rather than use a bidding system. PPC display advertisements, also known as banner ads, are shown on web sites with related content that have agreed to show ads and are typically not pay-per-click advertising. Social networks such as Facebook, LinkedIn, Pinterest and Twitter have also adopted pay-per-click as one of their advertising models. The amount advertisers pay depends on the publisher and is usually driven by two major factors: quality of the ad, and the maximum bid the advertiser is willing to pay per click. The higher the quality of the ad, the lower the cost per click is charged and vice versa.


The PPC advertising model is open to abuse through click fraud,[3] although Google and others have implemented automated systems[4] to guard against abusive clicks by competitors or corrupt web developers.[5]


Pay-per-click, along with cost per impression (CPM) and cost per order, are used to assess the cost-effectiveness and profitability of internet marketing and drive the cost of running advertisement campaign as low as possible while retaining set goals.[6] In Cost Per Thousand Impressions (CPM), the advertiser only pays for every 1000 impressions of the ad. Pay-per-click (PPC) has an advantage over cost per impression in that it conveys information about how effective the advertising was. Clicks are a way to measure attention and interest; if the main purpose of an ad is to generate a click, or more specifically drive traffic to a destination, then pay-per-click is the preferred metric. The quality and placement of the advertisement will affect click through rates and the resulting total pay-per-click cost.[citation needed]


Cost-per-click (CPC) is calculated by dividing the advertising cost by the number of clicks generated by an advertisement. The basic formula is:


There are two primary models for determining pay-per-click: flat-rate and bid-based. In both cases, the advertiser must consider the potential value of a click from a given source. This value is based on the type of individual the advertiser is expecting to receive as a visitor to their website, and what the advertiser can gain from that visit, which is usually short-term or long-term revenue. As with other forms of advertising, targeting is key, and factors that often play into PPC campaigns include the target's interest (often defined by a search term they have entered into a search engine or the content of a page that they are browsing), intent (e.g., to purchase or not), location (for geo targeting), and the day and time that they are browsing.

Flat-rate PPC[edit]

In the flat-rate model, the advertiser and publisher agree upon a fixed amount that will be paid for each click. In many cases, the publisher has a rate card that lists the pay-per-click (PPC) within different areas of their website or network. These various amounts are often related to the content on pages, with content that generally attracts more valuable visitors having a higher PPC than content that attracts less valuable visitors. However, in many cases, advertisers can negotiate lower rates, especially when committing to a long-term or high-value contract.

The flat-rate model is particularly common to comparison shopping engines, which typically publish rate cards.[7] However, these rates are sometimes minimal, and advertisers can pay more for greater visibility. These sites are usually neatly compartmentalized into product or service categories, allowing a high degree of targeting by advertisers. In many cases, the entire core content of these sites is paid ads.

Bid-based PPC[edit]


When the ad spot is part of a search engine results page (SERP), the automated auction takes place whenever a search for the keyword that is being bid upon occurs. All bids for the keyword that target the searcher's Geo-location, the day and time of the search, etc. are then compared and the winner determined. In situations where there are multiple ad spots, a common occurrence on SERPs, there can be multiple winners whose positions on the page are influenced by the amount each has bid. The bid and Quality Score are used to give each advertiser's advert an ad rank. The ad with the highest ad rank shows up first. The predominant three match types for both Google and Bing are Broad, Exact and Phrase Match. Google Ads and Bing Ads also offer the Broad Match Modifier type which differs from broad match in that the keyword must contain the actual keyword terms in any order and doesn't include relevant variations of the terms.[8]


Advertisers pay for every single click they receive, with the actual amount paid based on the amount of bid. It is common practice amongst auction hosts to charge a winning bidder just slightly more (e.g. one penny) than the next highest bidder or the actual amount bid, whichever is lower.[10] This avoids situations where bidders are constantly adjusting their bids by very small amounts to see if they can still win the auction while paying just a little bit less per click.


As a rule, the contextual advertising system (Google AdWords, Yandex.Direct, etc.) uses an auction approach as the advertising payment system.


There are several sites that claim to be the first PPC model on the web,[11] with many appearing in the mid-1990s. For example, in 1996, the first known and documented version of a PPC was included in a web directory called Planet Oasis. This was a desktop application featuring links to informational and commercial websites, and it was developed by Ark Interface II, a division of Packard Bell NEC Computers. The initial reactions from commercial companies to Ark Interface II's "pay-per-visit" model were sceptical, however.[12] By the end of 1997, over 400 major brands were paying between $.005 to $.25 per click plus a placement fee.[citation needed]

In February 1998 Jeffrey Brewer of, a 25-employee startup company (later Overture, now part of Yahoo!), presented a pay per click search engine proof-of-concept to the TED conference in California.[13] This presentation and the events that followed created the PPC advertising system. Credit for the concept of the PPC model is generally given to Idealab and founder Bill Gross.[14]


Although started PPC in 1998, Yahoo! did not start syndicating (later Overture) advertisers until November 2001.[16] Prior to this, Yahoo's primary source of SERPs advertising included contextual IAB advertising units (mainly 468x60 display ads). When the syndication contract with Yahoo! was up for renewal in July 2003, Yahoo! announced intent to acquire Overture for $1.63 billion.[17] Today, companies such as adMarketplace, ValueClick and adknowledge offer PPC services, as an alternative to AdWords and AdCenter. Similarly Google provides pay per click services, this was pioneered in APAC by Tim Schaare-Weeks.

Among PPC providers, Google Ads (formerly Google AdWords), Microsoft adCenter and Yahoo! Search Marketing had been the three largest network operators, all three operating under a bid-based model.[2] For example, in the year 2014, PPC(Adwords) or online advertising attributed approximately US$45 billion of the total US$66 billion of Google's annual revenue[18] In 2010, Yahoo and Microsoft launched their combined effort against Google, and Microsoft's Bing began to be the search engine that Yahoo used to provide its search results.[19] Since they joined forces, their PPC platform was renamed AdCenter. Their combined network of third party sites that allow AdCenter ads to populate banner and text ads on their site is called BingAds.[20]

PPC Statistics[edit]

  • Customers are 50% more likely to purchase something after clicking a paid ad.[21]
  • SMEs spend $108,000 to $120,000 annually on PPC ads.[22]
  • 57.5% of users don't recognize paid ads when they see them.[23]


In 2012, Google was initially ruled to have engaged in misleading and deceptive conduct by the Australian Competition & Consumer Commission (ACCC) in possibly the first legal case of its kind. The ACCC ruled that Google was responsible for the content of its sponsored AdWords ads that had shown links to a car sales website Carsales. The ads had been shown by Google in response to a search for Honda Australia. The ACCC said the ads were deceptive, as they suggested Carsales was connected to the Honda company. The ruling was later overturned when Google appealed to the High Court of Australia. Google was found not liable for the misleading advertisements run through AdWords despite the fact that the ads were served up by Google and created using the company's tools.[24]

See also[edit]


  1. ^ "Get More Customers with Pay Per Click (PPC) Ads - Google Ads". Retrieved 2021-05-04.
  3. ^ Jansen, B. J. (2007) Click fraud. IEEE Computer. 40(7), 85-86. The Pennsylvania State University. (PDF)
  6. ^ Szetela, David (2010). Pay-per-click search engine marketing : an hour a day. Joseph Kerschbaum. Indianapolis, Ind.: Wiley. ISBN 978-0-470-91719-0. OCLC 659561779.
  7. ^ Card Merchant Enrollment, Accessed June 12, 2007,
  9. ^ Yahoo! Search Marketing (May 18, 2010). "Sponsored Search". Website Traffic Yahoo! Search Marketing (formerly Overture). Archived from the original on February 20, 2010. Retrieved May 18, 2010.
  10. ^ The cost of AdWords Google AdWords Help, Accessed May 18, 2012,
  11. ^ Jansen, B. J., and Mullen, T. (2008) Sponsored search: An overview of the concept, history, and technology, International Journal of Electronic Business. 6(2), 114 – 131. (PDF)
  12. ^ Planet Oasis gives web sites promotion clout, Bradley Johnson, Advertising Age July 8, 1996, Retrieved December 5, 2012,
  13. ^ Overture and Google: Internet Pay Per Click (PPC) Advertising Auctions Archived 2009-03-25 at the Wayback Machine, London Business School, (PDF) Accessed June 12, 2007,
  14. ^ Jansen, B. J. (2011). Understanding Sponsored Search: Coverage of the Core Elements of Keyword Advertising. Cambridge University Press: Cambridge, UK.
  16. ^ Yahoo! Inc. (April 25, 2002). "Yahoo! and Overture Extend Pay-for-Performance Search Agreement". Yahoo! Press Release. Archived from the original on June 9, 2007. Retrieved May 18, 2010.
  18. ^ Rosenberg, Eric (5 February 2015). "How Google Makes Money".
  20. ^ Crum, Chris (September 10, 2012). "Link to Article: Yahoo And Microsoft Introduce The Yahoo Bing Network, adCenter Becomes Bing Ads". WebProNews. Retrieved 26 September 2012.
  21. ^ "SEO vs PPC – Time for a Fight! [Infographic]".
  22. ^ "How Much Does PPC Cost in 2021?". WebFX.
  23. ^ "VARN Original Research: Almost 60% of People Still Don't Recognise Google Paid Ads When They See Them". VARN.
  24. ^ "Google Inc vs ACCC". Retrieved 2015-07-02.