The Components and Impact of Sponsored Search

TLDR: Sponsored search has dramatically influenced how people interact with the Web and provided unparalleled reach, frequency, and control of marketing efforts and advertising campaigns.

Abstract: Sponsored search has dramatically influenced how people interact with the Web. It has funded the Web searching infrastructure that users have grown accustomed to and provided unparalleled reach, frequency, and control of marketing efforts and advertising campaigns. Sponsored search advertising has dramatically impacted search engines, consumers, and organizations, and will continue to do so in the foreseeable future.

Full text

The Components
and Impact of
Sponsored Search
A
ccording to market-
research firm IDC,
Internet marketing
is projected to grow
15-20 percent through 2011, with
sponsored search advertising the dom-
inant model (www.idc.com/getdoc.
jsp?containerId=prUS21304208). In
sponsored search—also known as
paid search, keyword advertising,
pay-per-click (PPC) advertising, and
search advertising—advertisers pay
search engines for trafc from the
search engine to their websites via
link-based ads that search engines
display in response to user queries.
Unlike many online advertising
models that preschedule online ads
such as banners, buttons, and sky-
scrapers on select webpages and
charge based on the number of ads
served, sponsored search dynami-
cally places small ads based on
keywords that reect user interests
and charges based on user clicks. For
example, a sponsored-search ad or
link in response to the query “Florida
golng,” in which “golf” is the key-
word, might be:
Florida Golf
$35 for 18 holes plus a cart at
Orlando Resort’s golf courses
OrlandoFloridaResort.com
Sponsored search provides the rev-
enue base for major search engines
such as Google, Yahoo!, Microsoft
Live, and Ask, as well as many online
businesses that rely on trafc driven
by PPC platforms. For example, more
than 90 percent of the $21.8 billion
Google earned in 2008 came from
sponsored search (http://investor.
google.com/n_data.html).
SPONSORED SEARCH
COMPONENTS
Introduced in 1998 by Over-
ture (later acquired by Yahoo!), the
sponsored search model impacts
three interrelated components:
search engines, consumers, and
organizations.
Search engines
Sponsored search provides the
revenue stream to support the mas-
sive and expensive infrastructure
current search engines need to crawl
billions of webpages, index these
documents (including text, images,
videos, newspapers, blogs, and audio
les), accept millions of Web queries
per day, and present billions of links
per week.
Without sponsored search, it is
doubtful that the major search engines
could nance anything close to their
current infrastructures to provide
these services. Keyword advertising
is critical as a revenue source for the
major search engines and appears to
be their major business model for the
foreseeable future.
Consumers
Consumers often use search
engines to collect information and
evaluate alternative products and
services. Market-research rm TNS
reports that an estimated 81 percent
of Internet users worldwide and 89
percent of Internet users in the US
rely on search engines to locate
websites (www.emarketer.com/
Article.aspx?R=1006885). Spon-
sored search supports many free
Bernard J. Jansen, Pennsylvania State University
Theresa B. Flaherty, James Madison University
Ricardo Baeza-Yates, Yahoo! Research
Lee Hunter, Google
Brendan Kitts, Microsoft
Jamie Murphy, University of Western Australia
Sponsored search advertising has dramatically impacted search
engines, consumers, and organizations, and will continue to do
so in the foreseeable future.
COMPUTER
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IT SYSTEMS PERSPECTIVES
Published by the IEEE Computer Society 0018-9162/09/$25.00 © 2009 IEEE

99
MAY 2009
an array of metrics that measure the
effectiveness of advertising dollars.
Advertising helps inform and per-
suade potential customers about a
particular brand, good, or service,
but results have often been difcult
to measure. This problem is epito-
mized in a saying attributed to John
Wanamaker, the father of modern
advertising: “I know that half of my
advertising budget is wasted, but I’m
not sure which half.”
Advertising in media such as
television, radio, magazines, and
newspapers traditionally relies
on impressions to reach a certain
demographic, geographic, or psycho-
graphic target group, an approach
that calls for running ads as fre-
quently as possible. However, it is
difcult to precisely determine the
number of customers that actually
see or hear the ad or change their
marketplace behavior as a result of
it, and thus to measure the return on
investment.
This isn’t the case with sponsored
search, which presents targeted ads
as an integral part of a potential
customer’s search experience and
impacts several stages of the search
process, including information search
and alternative evaluation.
Sponsored search also initially
relied on impressions, but it quickly
evolved into a more sophisticated
model with multiple layers of mea-
surement. For example, advertisers
can accurately measure customer
awareness based on whether a user
clicks on an ad.
The ad click-through rate (CTR) or
ratio of clicks to impressions became
the industry standard for gauging an
advertiser campaign, and cost per
click (CPC) became the basis for pric-
ing. One of the main advantages of
CPC is that the advertiser can easily
audit the number of clicks. Using
an online auction process, multiple
advertisers bid on potential terms,
which sets the eventual CPC.
Another metric in the sponsored-
search model is cost per action (CPA),
in which the advertiser only pays if
the customer clicks on the ad and
follows a given call to action such as
purchasing a product.
SPONSOREDSEARCH
TECHNOLOGIES
The technologies underlying
sponsored-search services are com-
plex. The primary goal of these
technologies is to get relevant ads in
front of interested consumers. There-
fore, sponsored-search platforms
provide mechanisms for businesses
to develop ads and link them to query
keywords that potential customers
submit to the search engine.
This isn’t as simple as it sounds
given that most Web queries are only
one or two terms, and terms can have
multiple derivations and meanings.
Targeted ads
Modern sponsored-search plat-
forms provide means for advertisers to
tailor their campaigns across myriad
variations. These include keyword
matching (broad, exact, phrase, or
negative keywords), keyword gen-
eration that automatically produces
possible alternate terms to trigger
the ad, and dynamic ad creation that
automatically creates ads targeted to
specic queries.
In addition to targeting ads based
on user information searches, organi-
zations can refine target campaigns
based on traditional demographics.
Sponsored-search platforms include
search engine services—including
currency conversion, flight time
tracking, desktop searching, and
language translation—that have
rapidly become essential to many
online consumers.
Organizations
Sponsored search is vital for many
prot- and not-for-prot organizations
to attract the interest of search-
ers and reach potential customers
through online advertising. By lever-
aging sponsored-search platforms,
small-to-medium-size enterprises
can effectively compete in the online
global marketplace. Sponsored
search provides unique opportuni-
ties to SMEs at little to no increased
transaction costs.
Commonly used by mail-order
companies, telemarketers, and cat-
alogers, direct marketing targets
individual customers to sell directly
to them. Due to the growing amount
of digital data at the individual
consumer level and increasingly
sophisticated modeling, direct mar-
keters continue to refine which
consumers they target.
Unlike traditional direct market-
ing, which segments customers based
on demographics and past behavior,
sponsored search relies on dynamic
consumer interests and current
consumer needs to reach potential
customers. Further, keyword adver-
tising provides real-time results and
lets direct marketers change adver-
tisements immediately.
To address the growing inter-
est in sponsored search, the Direct
Marketing Association now offers a
Search Engine Marketing Certica-
tion (www.the-dma.org/seminars/
searchcertication) aimed at profes-
sionals in the industry.
IMPACT OF
SPONSORED SEARCH
The impact of sponsored search on
advertising is groundbreaking due to
The impact of sponsored search on advertising is
groundbreaking due to an array of metrics that
measure the effectiveness of advertising dollars.

COMPUTER
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Search engine companies are also
pushing into traditional advertis-
ing areas with innovations that link
sponsored-search services to advertis-
ing in e-mail, magazines, newspapers,
radio, telephony, and television.
EDUCATIONAL
OPPORTUNITIES
There are also several opportunities
in this area to expose college students
to sponsored search technologies and
demonstrate the interrelationships
among search engines, organizations,
and consumers.
Instructors can incorporate the
Yahoo! Search Marketing plat-
form (http://help.yahoo.com/l/
us/yahoo/ysm/sps) into course
project s, while Microsof t and
Google each sponsor competi-
tions open to students at all levels.
The Microsoft Advertising Digital
Challenge (MADC; http://ms-digital-
challenge-2009.web.officelive.com/
default.aspx) embraces the entire
online marketing space, while the
Google Online Marketing Chal-
lenge (GOMCHA; www.google.com/
onlinechallenge) focuses on spon-
sored-search technologies.
In GOMCHA, groups of about ve
students participate in a keyword-
advertising competition that narrows
down the initial number of teams to
10, including one global winner and
three regional winners (Americas,
Europe-Middle East-Africa, and Asia-
Pacic). The rst GOMCHA in 2008
included more than 8,000 students
from 300 universities in 47 countries
across six continents; for 2009, it has
attracted 14,000 students from 500
universities in 60 countries.
GOMCHA is unique in that students
engage with real clients, use real
money, and leverage a real, working,
sponsored search information tech-
nology platform.
S
ponsored search has dramati-
cally inuenced how people
interact with the Web. It has
funded the Web searching infra-
content to searchers, and this includes
ads. Therefore, most major sponsored-
search platforms now rank an ad based
on both the price that an advertiser will
pay for it (the bid) and a relevance score
based on the ad’s CTR.
Keyword-advertising platforms
use historical data generated from
multiple ad displays to calculate the
relevance score. If an ad is deemed
less relevant to a particular keyword,
it will drop in ranking regardless of
the bid price. In reality, the advertiser
also seeks to display relevant ads, as
clicks by users who aren’t potential
customers incur a cost with little pro-
spective benet of a purchase.
Management tools
Finally, organizations have an
array of management tools such as
account organization software, A/B
testing to automatically assess ad
effectiveness, budget management
tools to control advertising expen-
ditures, and campaign analytics to
gauge progress to campaign goals.
These tools make it possible to
manage and measure the effective-
ness of advertising efforts in ways
that were impossible prior to the
advent of sponsored search. Most
permit real-time campaign manage-
ment for both reporting results and
changing ads.
temporal targeting that displays an ad
only at certain times of the day or on
certain days, geotargeting that displays
an ad only to users within a certain
location, and ad reach to control where
the ad appears on the Web.
Online auctions
Despite or perhaps because of
these sponsored-search technolo-
gies, organizations rarely have an
ad market completely to themselves.
Typically, multiple advertisers desire
the same set of keywords. To deter-
mine whose ad is shown and where
the ad appears on the search engine
results page, sponsored-search plat-
forms use online auctions in which
advertisers bid on the key terms
and phrases to appear in their ads.
For example, in the sample ad at the
beginning of the article, OrlandoFlori-
daResort.com bid might bid 55 cents
on the keyword “golf.”
The more demand there is for
a particular key term, the higher
the prices for top placement on the
results page. In a CPC model, the
advertiser only pays when a poten-
tial customer clicks on an ad that the
search engine displays.
The original Overture scheme
ranked ads based on bid. However,
search engine companies have an
inherent interest in serving relevant
B
elow are additional learning materials from a variety of perspectives and sources
for the interested reader.
Google AdWords Learning Center; www.google.com/adwords/learningcenter/•
index.html.
B.J. Jansen and T. Mullen, “Sponsored Search: An Overview of the Concept, History, •
and Technology,” Int’l J. Electronic Business, vol. 6, no. 2, 2008, pp. 114-131.
K.B. Jones, • Search Engine Optimization: Your Visual Blueprint for Effective Internet
Marketing, Wiley, 2008.
Microsoft Advertising; http://advertising.microsoft.com/home/home.•
D. Park,• Full Disclosure: Cracking the Google Online Marketing Challenge, 2009; www.
gomchabook.com.
Search Engine Land; http://searchengineland.com. •
Search Engine Watch; http://searchenginewatch.com.•
Yahoo! Search Marketing; http://help.yahoo.com/l/us/yahoo/ysm/sps •
SPONSORED SEARCH RESOURCES

101
MAY 2009
structure that users have grown
accustomed to and provided unpar-
alleled reach, frequency, and control
of marketing efforts and advertising
campaigns.
The technology underlying
sponsored-search platforms—includ-
ing online auctions, geotargeting,
and keyword volume prediction—is
extremely complex yet accessible via
intuitive system interfaces. Efforts
such as MADC and GOMCHA are
integrating the real-world aspects
of sponsored search with higher
education.
As the Web evolves, all indica-
tions are that sponsored search will
continue to have a major impact
on search engines, consumers, and
organizations. For more information
and learning materials from a variety
of perspectives, see the “Sponsored
Search Resources” sidebar.
Bernard J. Jansen is an assistant pro-
fessor in the College of Information
Sciences and Technology at the Penn-
sylvania State University. Contact him
at jjansen@acm.org.
Theresa B. Flaherty is a professor of
marketing in the College of Business
at James Madison University. Contact
her at ahertb@jmu.edu.
Ricardo Baeza-Yates is vice president
of Yahoo! Research Europe and Latin
America. Contact him at rbaeza@acm.
org.
Lee Hunter is a product marketing
manager at Google. Contact him at
leehunter@google.com.
Brendan Kitts is a program manager
at Microsoft. Contact him at bkitts@
microsoft.com.
Jamie Murphy is an associate pro-
fessor in the School of Business at
the University of Western Australia.
Contact him at jmurphy@biz.uwa.
edu.au.
Editor: Richard G. Mathieu, Dept. of Computer
Information Systems and Management
Science, College of Business, James Madison
Univ., Harrisonburg, VA; mathierg@jmu.edu
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Frequently asked questions

Q1. What have the authors contributed in "The components and impact of sponsored search" ?

For example, a sponsored-search ad or link in response to the query “ Florida golfing, ” in which “ golfing ” is the keyword, might be: Florida Golf $ 35 for 18 holes plus a cart at Orlando Resort ’ s golf courses OrlandoFloridaResort.com this paper.