AdWords is Google’s flagship advertising product and main source of revenue. AdWords offers pay-per-click (PPC) advertising, and site-targeted advertising for both text and banner ads.
Google’s text advertisements are short, consisting of one title line and two content text lines. Image ads can be one of several different Interactive Advertising Bureau (IAB) standard sizes.
Advertisers specify the words that should trigger their ads and the maximum amount they will pay per click.
Ads for relevant words are shown as “sponsored links” on the right side of the screen, and sometimes above the main search results.
The ordering of the paid-for listings depends on other advertisers’ bids (PPC – Pay Per Click) and the “quality score” of all ads shown for a given search.
The quality score is calculated by historical click-through rates, relevance of an advertiser’s ad text and keywords, an advertiser’s account history, and other relevance factors as determined by Google.
The quality score is also used by Google to set the minimum bids for an advertiser’s keywords. The minimum bid takes into consideration the quality of the landing page as well, which includes the relevancy and originality of content, navigability, and transparency into the nature of the business.
Though Google has released a list of full guidelines for sites, the precise formula and meaning of relevance and its definition is in part secret to Google and the parameters used can change dynamically.
(source Wikipedia Wikipedia Adwords)

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