How Does Google’s AdWords Select Work?

In the world of pay-for-placement links at search sites, one of the hottest topics is Google’s AdWords Select, which launched in February 2002.

Until then, Google’s paid-links programs were Premium Sponsorship and what is now called AdWords Original. The premium links appear at the top of Google’s search engine results page, the original AdWords on the right-hand side (they are both labeled "sponsored links"). Both are bought on a cost-per-thousand (CPM) basis.

The AdWords Select links also appear on the right side (and are labeled "sponsored links"). They introduced the idea of paying for the ads on a cost-per-click (CPC) basis. Marketers bid on keywords in an open bidding process.

You might think the highest bid would get the highest placement, but on Google it’s a little more complicated. With AdWords Select, the ad position rank is based on a formula of CPC times CTR (click-through rate), so a lower bidder could potentially get a higher position.

Also, with AdWords Select, links not enjoying a minimum CTR threshold may be removed. For example, for the top position on partner sites (sites Google distributes ad links to) the minimum threshold is typically 1%. On Google’s own site it is typically 0.5%.

Google still has the original AdWords program based on CPM, but it appears to be trying to phase it out. Each page is limited to eight ads on the right side, and the first four are reserved for those bought on CPC--the AdWords Select ads. (They don’t differ in appearance.)

The main innovation of AdWords Select is the way the self-service bidding is done, using with what some call "auto bidding" and Google calls the AdWords Discounter, so that the price actually paid for the click is lowered based on how high the competition is. See "Top Search Engine Players at a Glance" by clicking here

The AdWords Select links are distributed to such sites as AOL, AskJeeves, Earthlink, Netscape and Sympatico Lycos (Lycos Canada).

The premium ads, which are sold through a sales team and require a $10,000 spend over three months, are not distributed.