1. The advertiser joins a search engine's PPC program and "loads" the account with some money — say, $50 (though some companies' PPC budgets are in the hundreds of thousands, even millions, of dollars a month).
2. The advertiser creates a small text ad (in some cases, PPC can include images).
3. The advertiser specifies with which keywords the ad should be associated.
4. The advertiser specifies how much he's willing to pay each time someone clicks on the ad.
5. Later, someone arrives at the search engine, enters one of the keywords or keyword phrases specified, and clicks the Search button.
6. The search engine finds the matching ads and places them on the results page.
7. If the searcher clicks the ad, he is taken to the advertiser's Web site, and the advertiser is charged for the click.
PPC pulls the banner down
By the end of 2000, when the Internet bubble burst, banner advertising had acquired a really bad reputation. Billions of dollars had been spent on banner advertising, and most of it was wasted. Click-through rates — the proportion of ads that are clicked upon — for banner ads were very low, and many advertisers, perhaps most, spent more on the ads than they made on any sales derived from them.Banner ads had several problems:
- They were expensive. Although CPMs were typically $35-$50, because only one ad impression in 200 resulted in a click, that often translated into a price of $7-$10 per click.
- They had low click-through rates (the ratio of ad impression to actual clicks on the ad), which made them expensive. People were sick of seeing them, so they learned to just ignore them.
- Conversion rates were low. That is, only a small percentage of the people who clicked a banner and arrived at a site actually bought anything.
- They were in the wrong places. Ads were often placed in front of people who simply wouldn't be interested in the offer, which meant people didn't click them much.
