Google changes advertising model to pay-per-click

The program, called AdWords Select, ranks ads based partly on how much an advertiser pays and partly on popularity, or click-through rates. AdWords Select requires advertisers to pay only when a visitor clicks on the ad.

Google's previous program, AdWords, was based on a traditional online system that required payment by the number of impressions delivered.

"It's not just about how big your wallet is anymore; it's about creating the most relevant ads for our users," said David Krane, a Google spokesman.

Overture

The move escalates the battle between Google and rival Overture, who also has a pay-per-click model. Both are searching for new ways to generate revenue in an increasingly tight ad market. Overture has a huge lead in this market, with 54,000 advertising partners compared with an estimated 1,000 partners for Google. Although Google is the most popular search engine worldwide, Overture has struck deals with AOL, MSN and Yahoo.

Premium sponsorship

In addition to pay-per-click ads, Google sells "premium" sponsorships on the top of its results that are targeted to keyword searches. The paid placements sell for a flat rate based on the number of impressions, or ads, delivered. They cost between $25 and $80 per thousand impressions.

Mixing ads and content

Other search engines are under fire for mixing advertisements with search results while Google has taken the high ground of clearly labelling advertisements. Overture and for-fee listing service FindWhat.com, incorporates paid listings into their main search results.

Google is avoiding the furore which has seen a complaint with the Federal Trade Commission accusing other major search engines of violating deceptive-advertising laws by displaying paid ads instead of honest responses to consumer search queries, without adequately notifying consumers.