Pay Per Click (PPC)
The pay per click, or PPC, concept is simple. Instead of paying for a specific number of ad exposures, the advertiser pays only when someone clicks the advertisement. Web advertising can be very fickle - the position of the ads, the rest of the page content, the interests of the visitors can all have an impact on the click rate. If these factors don't align, many thousands of ad impressions can result in few or no clicks. By paying per click, the advertiser doesn't pay for wasted impressions.
While any kind of web ad can be compensated on a pay per click basis, the most familar PPC ads are Overture and Google Adwords search ads. These ads accompany the search results at Yahoo, Google, and other search engines. The advertiser is charged only when a searcher clicks on their ad.
Pay per click methods work well in some specific circumstances. Search engines like the model because the market can set the price effectively - since some keywords are far more attractive than others, a PPC model in conjunction with an auction approach to pricing lets the search engines maximize their revenue. PPC pricing is also good when an advertiser isn't certain how well an ad will perform. Instead of risking paying for a large number of exposures with low return on investment, paying per click reduces the chance of a failed campaign.
The PPC model doesn't eliminate all variables, of course. Not all clicks are profitable. Some sites may generate clicks from visitors who have a low probability of purchasing (or taking other desired action) at the destination site. Even with a pay per click arrangement, the advertiser should attempt to design an ad that attracts qualified clicks (vs. maximum clicks) and should measure the return on investment (ROI) of the advertising expense. Pay per click management (PPC management) software and services are available to track ad performance as well as manage the expenditures. See also Cost Per Click (CPC).
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