How does pay-per-click advertising make money for the services provider?
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If I'm putting in $X to buy clicks and I get $X worth of clicks back, how does the company providing the search/link/whatever service make money?
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Answer:
Pay-per-click advertising such as Google Adwords uses http://en.wikipedia.org/wiki/Generalized_second-price_auction. The highest bidder pays the price bid by the second-highest bidder. If you can get $X for 1000 clicks and thus set your bidding at $X/1000 per click (your willingness to pay for each click and let's assume you are the highest bidder for right now), you probably ends up paying an amount less than $X/1000 a click (based on the the willingness to pay of the second-highest bidder). This is just a very simple scenario but hopefully explain how the system works.
Yingkang Xie at Quora Visit the source
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