Before I discuss the article itself I would like to discuss the potential reliability issue that arises. To include this article in my paper I had to reconcile the fact that it's written by two employees at Yahoo! with the fact that it presents a really nice summary of search engine advertising.
Authors Fain and Pederson summarize sponsored search, or "the presentation of text advertisements in response to a user's query". They begin by explaining the importance of Web Search to the public. People often take for granted that engines like Google and Yahoo provide a real service to them for free. How do they do it? The answer, while quite obvious, is often overlooked. The revenue generated from text advertisement helps fuel the business models of these companies.
While search engine advertising implies exactly how it reads, things are much more complicated then meet the eye. The algorithms that determine the relevancy of keyword searches most often produce the best results per individual. However, in order to generate revenue, search engines have added several wrinkles in price setting and result listings to help their bottom line. Fain and Pederson introduce the earliest occurrences of such in the beginning of the article.
The original search engine model used annotation via tags (keywords) that described a sites content. The idea was that the most relevant results were listed first. Unfortunately, sites caught on and abused these processes by manipulating these tags to outrank more relevant sites. GoTo was the first search engine to address the problem by manually editing its search results, today this work is automated using complex software.
Before the days of sponsored search, search engines relied on banner advertising to earn revenue. Much like a billboard they charged for space on sites where more memorable graphical ads could be placed. A dilemma occurred however. Keep users on their site longer to view these banners, or send users promptly to the sites appearing in search results. Paid search helped end this problem by tying search engine's revenue to the actual sites visited from search result requests. But measurement and pricing of these paid searches still remained an issue.
One of the biggeer advancements in advertising was the cost per click model used by Yahoo! beginning in 1996. Yahoo! charged companies each time an advertisement provided by the search service resulted in a click to a certain companies website. However, problems arose, and the measure of the effectiveness of these clicks became increasingly debated. Do these clicks result in an action from the searcher? Do the advertisements provide a lasting impression on the searcher? All of these concepts had to be reconciled. Almost every search engine has a different strategy they use to evaluate the cost of their service and its effectiveness. This is why sponsored search bids can fluctuate so much even daily.
Very interesting article. You're right that many people don't realize how they are able to get a "free" service like Google. You nicely summarize many of the major issues related to the practice of sponsored searches.
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