When Small Is Better
How Google's AdWords system is changing online advertising
by Michael Hurwicz
May 2002
Web advertising hasn't exactly been a growth industry of late, with customer apathy for obtrusive banners eating up click-through rates. Yet Web use is up—especially at search engines and portals. For instance, according to a study by Jupiter Media Metrix Google saw a jump in unique visitors per month during the second half of 2001. The number of unique visits increased from just under 12 million to over 22 million. So if traffic is good but click-throughs are down, then the question is how to advertise in a way that serves that market rather than alienating it.
This is a particularly thorny problem for Google, which has built its loyal customer base by delivering fast searches and relevant results unimpeded by banner ads or flashy graphics. While a strategy of building ever-more-intrusive ads to try to keep users clicking might work at some sites, Google believes it would drive users away.
Since its founding, Google's challenge has been to reconcile its search-centric philosophy with turning an actual profit. An important step in that direction was to offer premium sponsorships that appear above the search results (as shown in Figure 1). These sponsorships are in line with Google's minimalist attitude toward page design. Each ad is given two lines of text, and is the width of a regular banner ad. Sold on a straight CPM (cost per thousand impressions) basis, the ads are guaranteed a certain number of impressions for a fixed period of time.
The ads are tied to specific keywords in searches, so that an ad for, say, an automobile manufacturer will only appear when a user is searching for a relevant topic like "car parts." Salar Kamangar, Google's director of product management for advertising products, explains, "Premium sponsorships are successful because they focus attention on the advertisers whose information is most useful to users." Testing showed that if the ads were not consistently related to searches, users soon learned to ignore them.
A maximum of two premium sponsorship ads appear with each search. Google deemed any more than that to be too distracting. The revenue from these premium sponsorships, along with income from software licensing, helped Google become one of the very few dot-coms that achieved profitability in 2001.
Introducing the Text Ad
So where could Google go from there? How could a search engine provider generate
additional ad revenue in an era of shrunken marketing budgets? And how could
it keep its highly usable pages from becoming
cluttered with flashy advertising promos?
In mid-2000, Google came up with the idea of selling space for small, highly targeted text ads that would be positioned to the right of search results. These ads would be inconspicuous and far enough away from the results so that they would not irritate those who had no interest in them. Yet, they would be within reach for those who did want to see them (see Figure 2).
The new ad format was named AdWords, and was launched in October 2000. At 25 characters for the ad title, and 35 characters each for two text lines and one link, AdWords insertions have a negligible effect on search times and have been accepted by users with little fuss. Google also displays no more than eight of these small ads on the results page of any search.
When placing a text ad, advertisers choose the keywords that will trigger the appearance of their ads. Typically, the more specific the keywords, the more successful the ad in terms of click-through rate. So a Canadian hosting company is likely to attract more interested viewers with an ad that is triggered by "hosting Canada" as opposed to an ad that appears on any search for "hosting," for example. This encourages advertisers to create ads that are highly targeted to search results, and thus, more likely to provide value to people who use them. In turn, the relevance of the ads encourages users to look at them. Click-through rates reflect this; AdWords are running at four to five times the industry standard for banner ads.
The AdWords system is easy to manage. It's completely self-service. Advertisers purchase space and specify keywords online. There's no need for a sales representative to become involved in the transaction. After an ad has been entered into the system, advertisers can check their results—such as impressions, click-throughs, and ranking—online. All they need is a credit card, which is charged between $8 and $15 per 1,000 impressions.
Although Google is a privately held company and does not divulge financial information, Kamangar says that AdWords represents a "substantial and growing" part of Google's revenue stream.
Implementation
Although Kamangar won't divulge proprietary details about the implementation of AdWords, he notes that the system took a small team of programmers only "a few months" to implement. It was a modest-size project in comparison with Google's total engineering effort. Today, that effort is focused on babysitting large clusters of off-the-shelf PCs. Google's servers numbered 12,000 in early 2002, according to Laura Ramos, research director at the Giga Information Group. (When AdWords was released, Google had "only" about 6,000 machines—an indicator of the impressive rate at which Google's computing power has been growing.) Google's server farms include machines configured for three main purposes: hosting Web servers, index servers, and document servers. The group has approximately 1,000 terabytes of total storage capacity, and manages a database that is multiple terabytes in size.
Like many young companies, Google is strongly oriented toward open-source software. The company relies on MySQL for its databases and Apache for its Web servers. The OS of choice is Linux 2.2 and 2.4. Traditionally, the group has coded most of its major applications in C++, but also works with PHP and Python on some projects.
The programming itself posed few challenges for Google's tech-savvy staff. Of about 275 employees, half are in engineering, including 50 PhDs in computer science. But when some companies tried to put a wrench in the system by setting up robots that would click on their competitors' ads, quickly "burning up" all of the impressions so that real potential customers never saw them, Google leapt into action. Developers wrote software to recognize patterns of robot-generated clicks, which they were then able to discount when charging advertisers.
The only other serious problem, says Kamangar, was the "phenomenal" growth in demand for the ads. The act of displaying the ads isn't so difficult. However, Google also has to store all information from past ads, and advertisers have to be able to log in and obtain reports based on click-through data. The initial sub-second response times for reports deteriorated as the number of reports being run increased.
This was particularly distressing for the company, because Google is planning future enhancements that will place even heavier loads on database servers. For instance, one feature will permit potential advertisers to obtain traffic forecasts by country. This information will let advertisers more accurately predict the likely response to ads targeted to any given combination of keywords. However, this feature requires analysis of large amounts of traffic data from the database.
Another planned enhancement is a more sophisticated keyword suggestion tool. This will be based on database searches that include all past queries. Finally, Google plans to adjust its pricing model based on which keywords advertisers continue to buy and which ones they abandon. This market mechanism for determining the value of keywords also requires detailed analysis of past ad campaigns.
To manage the increased load, not only for the reports but also in anticipation of future developments, Google focused on optimizing the database schema to bring response times back under a second while keeping machine costs down. Nevertheless, says Kamangar, the company is continuously installing new servers to handle the increasing demands of administration and reporting.
