Editing Pay-per-click (section)

===Bid-based PPC===
The advertiser signs a contract that allows them to compete against other advertisers in a private auction hosted by a publisher or, more commonly, an [[advertising network]]. Each advertiser informs the host of the maximum amount that he or she is willing to pay for a given ad spot (often based on a [[keyword (Internet search)|keyword]]), usually using online tools to do so. The auction plays out in an automated fashion every time a visitor triggers the ad spot.

When the ad spot is part of a search engine results page ([[Search engine results page|SERP]]), the automated auction takes place whenever a search for the keyword that is being bid upon occurs. All bids for the keyword that targets the searcher's Geo-location, the day and time of the search, etc. are then compared, and the winner is determined. All this happens in real-time, therefore this is called [[Real-time bidding|real-time-bidding]] or RTB, and in a fraction of a second. In situations where there are multiple ad spots, a common occurrence on [[Search engine results page|SERPs]], there can be multiple winners whose positions on the page are influenced by the amount each has bid and the quality of their ad. The bid and [[Quality Score]] are used to give each advertiser's advert an ad rank. The ad with the highest ad rank shows up first. The predominant three match types for both Google and Bing are Broad, Exact, and Phrase Match. Google Ads and Bing Ads also offer the Broad Match Modifier type (although Google retired it in July 2021) which differs from broad match in that the keyword must contain the actual keyword terms in any order and doesn't include relevant variations of the terms.<ref>{{cite web |url= https://support.google.com/adwords/answer/6324?hl=en |title= Keyword Matching Options Article: Keyword Matching Options Bing Ads |publisher= Google Inc. |access-date= 26 January 2013}}</ref>

In addition to ad spots on [[Search engine results page|SERPs]], the major advertising networks allow for contextual ads to be placed on the properties of 3rd-parties with whom they have partnered. These publishers sign up to host ads on behalf of the network. In return, they receive a portion of the ad revenue that the network generates, which can be anywhere from 50% to over 80% of the gross revenue paid by advertisers. These properties are often referred to as a ''content network'' and the ads on them as ''[[Contextual advertising|contextual ads]]'' because the ad spots are associated with keywords based on the context of the page on which they are found. In general, ads on content networks have a much lower [[click-through rate]] (CTR) and [[conversion rate]] (CR) than ads found on SERPs and consequently are less highly valued. Content network properties can include websites, newsletters, and e-mails.<ref>{{cite web|url=http://advertising.yahoo.com/smallbusiness/whatsincluded|title=Sponsored Search|author=Yahoo! Search Marketing|author-link=Yahoo! Search Marketing|date=May 18, 2010|publisher=Website Traffic Yahoo! Search Marketing (formerly Overture)|url-status=dead|archive-url=https://web.archive.org/web/20100220162810/http://advertising.yahoo.com/smallbusiness/whatsincluded|archive-date=February 20, 2010|access-date=May 18, 2010}}</ref>

Advertisers pay for every single click they receive, with the actual amount paid based on the amount of bid. It is common practice amongst auction hosts to charge a winning bidder just slightly more (e.g. one penny) than the next highest bidder or the actual amount bid, whichever is lower.<ref>[https://support.google.com/adwords/bin/answer.py?hl=en&answer=1704424 The cost of AdWords] Google AdWords Help, Accessed May 18, 2012,</ref> This avoids situations where bidders are constantly adjusting their bids by very small amounts to see if they can still win the auction while paying just a little bit less per click.

In order to maximize success and achieve scale, automated bid management systems can be deployed. These systems can be used directly by the advertiser, though they are more commonly used by advertising agencies that offer PPC bid management as a service. These tools generally allow for bid management at scale, with thousands or even millions of PPC bids controlled by a highly automated system. The system generally sets each bid based on the goal that has been set for it, such as maximizing profit, maximizing traffic, getting the very targeted customer at break even, and so forth. The system is usually tied into the advertiser's website and fed the results of each click, which then allows it to set bids. The effectiveness of these systems is directly related to the quality and quantity of the performance data that they have to work with — low-traffic ads can lead to a scarcity of data problem that renders many bid management tools useless at worst, or inefficient at best.

As a rule, the contextual advertising system (Google Ads, Yandex.Direct, etc.) uses an auction approach as the advertising payment system.