It’s no secret that Google Ads (formerly AdWords), is Google’s biggest earner, bringing in $32 billion of its $38.9 billion operating income in Q2 of 2019. But what’s the history of the platform that quickly propelled Google to becoming the biggest Search Engine, and one of the biggest tech companies in the world?
The Early Days
To answer this question, it’s important to go back to the beginnings of Pay Per Click advertising. In the early days of PPC, Google was nowhere to be found, and the biggest company was goto.com, which launched in 1997. Their take on PPC was much different than what we have today. For one, the auction process was completely dominated by the bids, and the cost per action was actually on a CPM (Cost Per 1000 Impressions) basis. There was no focus on relevance to the search terms, with the amount an advertiser was willing to pay being the only determining factor in which ad showed.
Predictably, this led to the biggest companies being the only advertisers. Another issue was that there was no connection between what someone was searching for and what actually appeared as an advertisement. This lead to high costs, low conversion rates and the entire landscape being dominated by giant corporations.
When Google arrived on the scene, their solution was revolutionary for the time. They used a very simple algorithm to decide who wins the auction for each search: Bid Amount * CTR (Click-through Rate). While it may seem hilarious by today’s standards, this was an incredible leap in Search Engine Marketing. All of a sudden, budget alone no longer mattered as much, and your ad actually being relevant to the searcher was very important.
Another thing this very simple change did was allow smaller advertisers to enter the mix. It was no longer a matter of having the highest bids or biggest budget, but being relevant. Google built their Pay Per Click Marketing solution on one very simple concept: Relevance. The better your ad represented the searcher’s intent, the more often it would be shown, the more often it would be clicked, and the lower your CPC (Cost Per Click) would be.
With this change, Google began their ascent as the premier search engine for PPC marketing, a trend that has been evident in the past 20 years.