The Google Way

Competitive Bidding

When setting the payment structure for Google ads, following a model like Yahoo!'s and setting a standard cost-per-click would have been simple. Instead, using Overture's example, Google chose a bidding system. Advertisers compete for keywords, and the more they do, the higher the price of the keyword.

Instead of using traditional ascending bids, as practiced in auction houses, Google's leaders chose a system in which the bidder states the maximum price he or she is ready to pay for a keyword. This price remains confidential, known only to Google. The sale is made to the person making the highest bid, but at the next highest price. The system encourages bidders to indicate the price they are actually ready to pay because keeping ...