Pay Per Click – Definition

Cite this article as:"Pay Per Click – Definition," in The Business Professor, updated April 5, 2019, last accessed October 25, 2020, https://thebusinessprofessor.com/lesson/pay-per-click-definition/.

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Pay per Click (PPC) Definition

An internet advertising model that aims to bring traffic to websites is commonly known as PPC (Pay per Click). Its other name is CPC (Cost Per Click). When someone clicks on the ad, the advertiser makes payment to the publisher who can be the owner of a website or network of sites.

It is a technique to buy visits to a website. These visits are not the results of organic traffic. Its most popular form is Search Engine Advertising.

A Little More on What is Pay Per Click

PPC is commonly linked with 1st-tier search engines, for example, MS Bing Ads and Google Adwords. The marketers place a bid on the keyword phrases, related to the target market. Whereas content websites generally charge a specific fixed price on every click instead of using a bidding system. Certain advertisements are shown by PPC, we call them banner ads. These are displayed on websites around the related content which agree to display ads. It is not a Pay per Click advertising. Facebook and Twitter-like social media sites also use PPC advertising model.

Sites can offer PPC advertisements. They show an ad when a keyword query contains the same results as they are in the keywords list of the advertiser added in various advertisement groups or when a content website shows related content. These are known as Sponsored Ads or Sponsored links. They appear on the result page of a search engine below or above the organic results or maybe anywhere the website developer selects on a content website.

The model of Pay per Click is criticized because of click frauds. Though search engines, including Google, have designed automated systems to protect against competitors’ abusive clicks who may be the corrupt developer.

Purpose

There is a concept of Cost per Impression (CPI) and Cost Per Order (CPO). Their purpose is to analyse the profitability of online marketing and cost-effectiveness. The PPC is beneficial than CPI because it provides information on how effective the marketing is. Clicks actually measure interest and attention. If an ad is just to get clicks, means its purpose is to drive traffic to a specific website, then PPC is preferable. Once, a specific no. of web impressions are obtained successfully, the ad placement and quality will have an effect on the Click Through Rates.

Construction

To calculate PPC, divide the advertising cost by the no. of clicks produced by an ad. The formula becomes

Pay per Click (USD) = Advertising Cost (USD) / Number of Clicked ads (#).

2 primary models are used to determine PPC, i. e. Flat Rate, Biased Rate. In both situations, the advertiser has to bring the potential click value into consideration from a provided source. This value depends on the type of a user or visitor, the advertiser expects to visit the target website. And also, what can the advertiser get from his visit in the form of short-term and long-term revenue. There are many other ways and factors of advertising in which targeting or targets’ interests are utmost important (a search term defines it mostly, i.e. the keywords we use to enter as a query in the search engine or a page content that we browse, intention to buy or not, tracking location (comes under the head of geo-targeting), day, time of browsing, etc.

Flat-rate PPC

Flat Rate Pay Per Click is a model which states that the advertiser and the publisher of the ad agree on a fixed payment against every click. Most of the times, the publisher keeps a rate card with him that lists PPC in a distinct website or network areas. These payments are mostly relevant to the pages’ content, which typically attracts more users and has a higher Pay Per Click as compared to the content that attracts lesser users. However, mostly, the advertisers or the marketers decide lower rates, particularly when they commit to a value contract (more value or long term).

This model is specifically common for comparison shopping engines that generally publish rate cards. However, such rates are least, sometimes. The advertisers can make more payment for greater visibility. These websites are typically compartmentalised neatly into the categories of goods or services. This allows advertisers to do the highest targeting. In most of the situations, the whole main content of such websites is paid advertisements.

Bid-based PPC

There is a contract signed by the advertiser to compete with other advertisers on the basis of a private bid or auction that a publisher hosts or generally an Advertising network. This is said to be Bid-Based Pay per Click. For a given advertisement spot (mostly on the basis of a keyword), each of the advertisers tell the host about the highest amount he wants to pay. For this, they use online tools. Whenever a user triggers the advertisement spot, the auction performs in an automated manner.

Advertisers make payment for every click they get, with the real amount paid on the basis of bid amount. It is common in auction hosts that they charge the winner of the bid a bit more, for example, 1 penny as compared to the next bidder of the maximum amount or the real amount bid, whatsoever is lower. This avoids cases where bidders constantly manage their bids you minor amounts to observe if they are still able to win the bid by making payment of just a bit less/click.

The advertisers can deploy automated bid control systems in order to achieve scale and get maximum success. They can directly use them, although advertising agencies offering a Pay per Click bid management service generally use them. Such tools normally manage bids at scale with 1000s or even millions Pay per Click bids that a fairly high automated system controls.

The system commonly sets every bid on the basis of an objective that is set for it, for example, maximize traffic and profit, achieve the targeted visitors at break even and so on. It is generally tied to the website of the advertiser and fed the outcomes of every click that then enables it to manage bids. These systems’ effectiveness directly relates to the quantity and quality of performance information they work with. Low traffic advertisements may cause scarcity of data issue provides several bid management tools inefficient at the best level and useless at the worst level.

References for Pay Per Click

Academic Research on Pay per Click (PPC)

Detecting click fraud in payperclick streams of online advertising networks, Zhang, L., & Guan, Y. (2008, June). In Distributed Computing Systems, 2008. ICDCS’08. The 28th International Conference on (pp. 77-84). IEEE. Online advertising has become an essential step in the way to progress for a business. Its popular model is PPC (Pay per Click) in which the advertiser is charged for every click. But the competitors have started getting false clicks that is a serious issue called click fraud. This paper detects discusses the duplicate clicks issue using jumping and decaying windows. But these algorithms have still not solved this issue. The authors present Group Bloom Filters and Timing Bloom Filter to check click frauds. These algorithms use the jumping window and decaying window in an efficient way with 0 false negative rates.

•    The price of truthfulness for payperclick auctions, Devanur, N. R., & Kakade, S. M. (2009, July). In Proceedings of the 10th ACM conference on Electronic commerce (pp. 99-106). ACM. This paper is a detailed analysis of PPC auction in which the CTR (Click Through Rates) of the players are not known. This auction comes across an exploit dilemma. Certain mechanisms have been presented to apply Multi-Armed Bandit Method. A bidder may involve in the manipulation of bids to get maximum benefit for himself. The authors use a Vickrey auction which the actual Click Through Rates. They use a Truthful Regret to differentiate in revenues of Vickrey auction and expected auction. The truthful restriction defines statistical limits on the regret that is achievable.

•    On the security of payperclick and other Web advertising schemes, Anupam, V., Mayer, A., Nissim, K., Pinkas, B., & Reiter, M. K. (1999). Computer Networks, 31(11-16), 1091-1100. This article offers a hit inflation attack on PPC techniques. For the program offerer, it is virtually not possible to detect whether he is a 3rd party individual, network or the click target. This attack’s can accelerate from PPC to those programs that pay the referrer only, in case, the referred visitor subsequently buys PPS (Pay Per Sale) or involves in some other significant activity at the target website PPL (Pay Per Lead). Audit failure has also been taken into consideration.

•    Online advertising: Pay-per-view versus payperclick, Mangani, A. (2004). Journal of Revenue and Pricing Management, 2(4), 295-302. This study evaluates the pricing policy of publishers in the market in which they cannot affect the advertising price CPI (Cost Per Impression) and CPA (Cost Per Action). The results are that the editorial income distribution in PPV (Pay Per View) and PPC techniques is subject to access elasticity and actions according to advertising quantity. Theoretical findings are vital because these parameters generally allow analysing sharply the behaviour of an online user.

•    Online advertising: Pay-per-view versus payperclick—A comment, Fjell, K. (2009). Journal of revenue and pricing management, 8(2-3), 200-206. The authors examine the choice of PPV (Pay Per View) and PPC (Pay Per Click) if a publisher acts as a price taker for advertising banners in the market and the no. of visitors declines in advertising. This paper provides many price recommendations. 1st, the publisher must make a choice out of PPC and PPV. Especially in case of less CTR (Click Through Rates) as compared to PPV/PPC prices, he must opt out PPV. If a CTR is exogenous, the advertising optimal amount is the same for both of these techniques. If the CTR is endogenous, the advertising amount will differ.

•    Search engine optimization and payperclick marketing strategies, Kritzinger, W. T., & Weideman, M. (2013). Journal of Organizational Computing and Electronic Commerce, 23(3), 273-286. This article investigates the relation in the website owners who invest in PPC (Pay Per Click) and SEO (Search Engine Optimization). The authors collect data from the results of Google search. They record the first ten listed websites in the Sponsored Ads. Their ranking is checked. The results are that website owners do not use SEO as they should. It is helpful for marketing managers to use their Search Engine Marketing amount in a better way. The findings are unique as such type of empirical research does not exist already.

•    Payperclick search engine advertising: are hotel trademarks being abused?, O’Connor, P. (2009). Cornell Hospitality Quarterly, 50(2), 232-244. PPC (Pay Per Click) helps in tackling the SEO limitations. It is better to use the keywords efficiently instead of manipulating web pages to get clicks. This paper addresses the use of the trademark in hotel searches. With the help of ninety attributes in the US, Europe and Asia, the authors performed searches whether the 3rd party is using trademarks of a hotel in the paid ads. Though they do the organic search well but still, they use paid listings. The need is to reclaim the trademarks of hotels in the search scenarios.

•    The glitch in on-line advertising: a study of click fraud in payperclick advertising programs, Midha, V. (2008). International Journal of Electronic Commerce, 13(2), 91-112. The PPC (Pay Per Click) is an effective advertising strategy but the click frauds are commonly increasing. This paper presents a model of ethical behaviour which contains evaluation, subjective norms and consequences. The authors explain this model using the Reasoned Action Theory, Planned Behaviour Theory and Deterrence Theory. They collect data of one hundred and fifty-five subjects knowing PPC programs. The results are helpful for the SPs (Service Providers) and lawmakers.

•    Payperclick advertising: A literature review, Kapoor, K. K., Dwivedi, Y. K., & Piercy, N. C. (2016). The Marketing Review, 16(2), 183-202. Pay Per Click (PPC) is a kind of digital marketing which has a lot of benefits but it is also objected on the click frauds like demerits. This study is a review of fifty publications on this type of advertising to estimate the effects of organic clicks as well as the click frauds. The authors synthesize their results and suggest accordingly.

•    Payperclick, PALSER, B. (2001). American Journalism Review, 23(8), 82-82. This research has been carried out to explain the PPC (Pay Per Click) method of advertising in which the advertiser has to pay for each click by the visitors for specific keywords. Unfortunately, the scheme has suffered because of the very common click frauds nowadays. The author describes the effectiveness of organic traffic and ways to detect inorganic results.

•    The Effect of Fraud Investigation Cost on PayPerClick Advertising., Chen, M., Jacob, V. S., Radhakrishnan, S., & Ryu, Y. U. (2012). In WEIS. Click fraud has become a critical issue in PPC (Pay Per Click) in which the advertisers make payment to the Service Provider as an ad gets clicked. 3rd Party Investigation and Reputation are the mechanisms to detect such frauds. The authors identify click fraud using 3rd Party Investigation. The Service Provider 1st makes classification of fraud clicks and after that, the advertiser performs the same act on the valid clicks only with the help of verification technology. If their results do not match, a 3rd Party uses the Investigation technology. Then it is analysed who should pay for 3rd party investigations.

 

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