Paid search: The innovation that changed the Web

Search engines are key to the operation of the World Wide Web. This

centrality, however, presents challenges: search engine providers face the problem of

revenue generation when users expect free content, while advertisers need to

attract the interest of searchers. The innovation that effectively addresses these

challenges is the use of text advertisements based upon search topic, known as paid

search. The method entails advertisers competing for top listing position through

bidding in ongoing auctions and then paying when users click on their advertisements,

making paid search a flexible and accountable form of advertising. Since its

introduction in 1998, paid search has become the dominant form of online advertising

and led to Google's $140 billion market capitalization in 2006. This article analyzes

the emergence of paid search and the mechanics of its operation, and offers

managers guidance on its effective usage.