Search Engine Advertising: A Brief History

S
This is part 2 of 50 in 'The Science of PPC' blog series
The Science of PPC is a 50-part series by Andrew Goodman of Page Zero Media with new content published every Thursday. The goal of the series is to expose readers to enough insights, tips, tricks, and examinations of real-world methodologies to walk away with some feeling of mastery and confidence in their own powers of PPC analysis. Learn more

Keyword advertising is now in its 20’s.

Some brief history.

A lab is born

The first company of significance to ever offer keyword-targeted ads appearing near Web search results was a search engine called Open Text, in 1996. In 1999, a leading search engine – AltaVista – did the same amid predictions that their greed would drive them out of business. (It wasn’t advertising, but rather the quality of the search product, that drove most non-Google engines out of business.)

A “paid search results only” PPC invention called GoTo (funded and incubated by an aptly named investment firm called Idealab) got off to a slow start, but caught on in 1999 after it began to be syndicated through partners like Microsoft.
A “paid search results only” PPC invention called GoTo (funded and incubated by an aptly named investment firm called Idealab) got off to a slow start, but caught on in 1999 after it began to be syndicated through partners like Microsoft bCentral and AOL.

Meaning of course that it was no longer “paid search results only” – which was quite a bad idea, especially at the time. (GoTo later became Overture, and following an acquisition, Yahoo Search Advertising.)

In the beginning, there were naked search results

In its age of innocence, Google offered users a honeymoon period free of advertising (hard to believe now, right?). The company launched its Web search engine based on some principles that might cut down on keyword “web spam.” One key component of the architecture was to understand the hyperlink relationships among as many websites and as many pieces of content as possible. A link was presumed to be an unbiased third-party signal reflecting “authority.” Said links could also give cues as to meaning, with their anchor text literally telling the engine what others thought the content was about. It was a little more complicated than that back then, and it’s a lot more complicated than that now, but that’s the basic idea.

Even to a layperson, the basic principles behind Web search technology are reasonably accessible:

  1. Develop and continually refresh a (non-exhaustive) index of as much online content as desired or feasible (this is done through “spidering” or “crawling” the Web,; but there have also been numerous schemes to “submit” websites or pages to the engines);
  2. Develop an algorithm to provide the most relevant and useful results possible by rank-ordering pieces of content in relation to a user’s search query.

Eventually, as with any startup offering a free online product, Google would have to figure out a business model if it wanted to keep the lights on.

Web search engines weren’t, at the time, considered natural advertising venues. Many observers considered search to be almost a public utility – possibly because it was the kind of technology that had formerly been associated with libraries and the academic research community.

Greed is a thing

But revenue-producing online giants weren’t unheard of even in 2000. Yahoo paved the way by going public in 1996 (valuation: $848 million) as a categorized directory of Web content. (Sidebar: The company’s value peaked at over $120 billion in late 1999 and early 2000 before cratering to less than $10 billion. The optimistic valuation of Yahoo and numerous other “dot coms” had been built on the premise of strong revenue growth. But where was that revenue coming from, and where would it come from? Display advertising. As it turned out, display advertising was grossly overpriced at the time, and many companies with inflated values were buying it with investor dollars, and/or from one another. The Ponzi-like scheme did as all such schemes must do: it collapsed. But eventually, fair valuations returned as the digital age came into its own and as workable business models emerged.)

To make the directory searchable, Yahoo didn’t develop their own technology, but rather, “powered” that search with a revolving door of technology from partners. Google was gaining notoriety anyway, but being featured as part of the Yahoo experience helped the company grow by leaps and bounds. Without that partnership, Google’s growth in users (and company valuation) might well have been delayed. Yahoo gave Google the hand up it needed to quickly eclipse Yahoo as a household name in search.

As company insiders researched ad models, Google rolled out an unsuccessful early version of their AdWords platform in 2001, pricing keyword inventory at a fixed (Cost Per Thousand Impressions) CPM rate depending on ad position.
As company insiders researched ad models, Google rolled out an unsuccessful early version of their AdWords platform in 2001, pricing keyword inventory at a fixed (Cost Per Thousand Impressions) CPM rate depending on ad position. But the next iteration was a winner. Named Google AdWords Select and released in early 2002, the system charged advertisers on a cost-per-click basis in a Vickrey auction format (advertisers’ keyword “bids” are technically their “Max CPC,” or the most they’d be willing to pay for a click) that remains roughly intact to this day (advertisers’ keyword “bids” are technically their “Max CPC,” or the most they’d be willing to pay for a click). An early Googler, Salar Kamangar, is often credited with advocating this format internally.

Users continued to go ga-ga over Google as the search engine itself continued to distance itself in quality from other available technologies. Folks didn’t flinch – much – at the new ads. And AdWords quickly found traction with advertisers, who loved the intuitive setup of the ad platform.

(That being said, I ran across a lot of people who found it super-confusing. There were few parallels in many people’s professional background to help them succeed in the new medium. Those of us who arrived on the scene with no presuppositions about how marketing and advertising are “supposed to” work had a clear advantage.)

Google – and its many advertisers – haven’t looked back since. The company’s current $825 billion valuation rests primarily on advertising revenues, which still make up over 90% of Google’s overall revenues.

Tell me what you want, what you really really want

These tiny ads kind of snuck up on the advertising industry. In the wake of the dot com bust of 2000, PPC’ers toiled away under deep cover, drowned out by the din from the traditional Super-Bowl-ad world and the yacking of 30-minute infomercials. The new ads would rebuild the credibility of digital advertising, which had been badly frayed by fraud and cynicism in its first go-round.

The secret, of course, lay in the nature of the consumer’s stance towards this kind of advertising: in some sense, it was theirs as much as the advertiser’s. The platform and the act of searching are interactive; granular. Perhaps the sentiment was just in the air: in 1996 the Spice Girls released their monster hit “Wannabe.” (Also worthy of mention: technological visionary Kramer, who had, in a Seinfeld episode in 1995, done an impression of “Mr. Moviefone.” Kramer broke from repeating menu options in response to button presses to exclaim “Why don’t you just tell me the name of the movie you want to see?”)

Increasingly picky consumers came to take fast fashion and constant novelty as givens while as the formerly Fordist economy moved to flexible specialization. Said consumers just loved the opportunity to tell Google what they really, really wanted.

The huge chasm separating the value of search advertising impressions from other forms of digital advertising impressions in the aughts boiled down to one simple concept: intent. Strong buying intent is like catnip to an advertiser. We’re still crazy about it.

It takes a knack

Even now, not very many advertisers are taking full advantage of the powerful testing capabilities of the Google Ads platform.

Well-meaning new advertisers who do test (we regularly offer free audits to those potentially seeking our services) seem to stumble around a bit, today as ever. Ego-driven, deceptive, and mean-spirited ideas seem to be popular for the ad copy itself, as if the ad system and the marketing process need to be “gamed” rather than mastered. Flat out, these approaches don’t work. With our experience, many times over, we’ve been able to set advertisers down a more profitable path. Science over snark.

Read Part 3: What Counts as Science?

About the author

Andrew Goodman

Andrew Goodman is Founder & President of Page Zero Media. His accomplishments include writing the first-ever full-length book about Google AdWords, heading up this Google Ads Premier Partner agency, maintaining a string of 48 consecutive speaking engagements at Search Engine Strategies in North America, co-founding a startup called HomeStars, and wearing the dickens out of a lab coat at the SMX Advanced session called Mad Scientists. His active lifestyle requires increasingly elaborate bowls of yogurt. He works from the Toronto office as well as a home office in Fredericton, NB.

Latest Entries

Tags

About the Author

Andrew Goodman is Founder & President of Page Zero Media. His accomplishments include writing the first-ever full-length book about Google AdWords, heading up this Google Ads Premier Partner agency, maintaining a string of 48 consecutive speaking engagements at Search Engine Strategies in North America, co-founding a startup called HomeStars, and wearing the dickens out of a lab coat at the SMX Advanced session called Mad Scientists. His active lifestyle requires increasingly elaborate bowls of yogurt. He works from the Toronto office as well as a home office in Fredericton, NB.

PPC Management Services

Looking to work with our search marketing agency, Page Zero Media? We’d love to hear from you. Just fill out our form to get a quote

🙂