Advertisers Bid, You Click, They Pay

Keyword Auction Nets Google Most of Sales

Antonella Pisani considers herself a portfolio manager, but she doesn't trade stocks and bonds. Instead, the 28-year-old Gateway Inc. executive spends her days bidding on words and phrases as part of a behind-the-scenes marketplace that generates virtually all of Google Inc.'s sales and profit.

Gateway is one of more than 150,000 advertisers that participate in a continuous electronic auction for the right to place an ad on the screen when a computer user types keywords in English and other languages into the Google search engine. The ads appear either above or to the right of Google's free search results.

Through a system known as pay-per-click, advertisers pay Google a fee, equal to their bids on keywords, each time a computer user doing a search clicks on one of their ads. Last year, those clicks generated about 95 percent of the company's nearly $1 billion in revenue.

Today, Google is rolling out a new product in test form that will enable marketers to include photographs and graphics in ads distributed to thousands of Web sites. Previously, ads purchased through Google had been text-based.

The hefty advertising revenue at Google, as well as its use of a sophisticated auction market for keywords, were described in the company's recent filing for its upcoming initial public offering of stock. Though Google was guarded about its plans, the filing makes it clear that the auction market for search terms is a central part of its growth strategy.

Every advertiser willing to pay at least a nickel gets the right to place an ad, but only the top bidders as determined by Google get placement on the first page of search results.

To find buyers online for its computers, cameras and other products, Gateway spends millions of dollars quarterly on Google. One day last week, Gateway's bidding for the words "digital camera" averaged about 75 cents, while its bidding on the plural, "digital cameras," averaged $1.08. Pisani said plural terms often cost more because consumers using them in searches are more likely to end up as buyers.

"My average on Google is just under 50 cents per click. It is a very efficient marketing program," Pisani said. "You are capturing people while they are interested."

All of this is a marked departure from pop-up ads and the banner ads that dominated online advertising a few short years ago. In contrast to a banner ad, which a company paid for whether a computer user read it or not, a company pays Google only when a potential customer clicks on one of its ads. That click typically takes the consumer directly to an Internet page where a purchase can be made.