How Keyword Advertising Works

Last updated


Daniel Wade


July 28, 2022

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Keyword advertising is when an advertiser pays to have an ad appear in the search engine results when a person uses a particular phrase to search the web. Used since the late 1990s, this type of advertising has been both embraced and maligned by internet search engine users. 

Users that appreciate keyword advertising claim that paid-for search results provide quick access to the most relevant websites. They rely on the idea that advertisers are keen enough to interpret what they are looking for based on a few key search terms. Something at which advertisers have become very good.

Other users, however, are less appreciative of this type of advertising. They express irritation with what they perceive as a group of paid-for results cluttering up the top of the search results list. These users would rather see all results ranked solely by relevance. While this may be an idyllic notion for some, it defies the underlying motivation for search engines - monetizing the search.

While Yahoo and Bing offer search engine keyword advertising, Google Ads is the largest, most well known, and most frequently used platform for this type of advertising. Google Ads is Google's leading source of revenue, which Google reported to be nearly $116.3 billion in 2018.


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How Keyword Advertising Works

Keyword advertising is designed to match the needs of search engine users with providers of related products or services. It is especially useful since the advertiser can be confident that the customer is interested in their specific offering at that very moment.

For keyword advertising to work effectively, an advertiser must choose highly relevant keywords; the more relevant the keywords, the more cost-effective the ad. 

Keywords are the words or phrases that an advertiser anticipates will be entered into the search engine when a customer is looking for their product or service. If, for example, a company sells shoes, they would likely want to bid on keywords like shoes, sneakers, loafers, boots, footwear, high-heels, flats, and similar terms. These words should match the products offered by the advertiser. 


Search engine keyword advertising uses the pay-per-click (PPC) or cost-per-click (CPC) model. With this advertising model, an advertiser pays a publisher only when an ad is clicked. PPC advertising is popular because it dramatically reduces the risk posed by an ineffective ad. The advertiser only pays when the ad does its job and brings a potential customer to their website. The challenge is creating an appealing ad and choosing the best keywords to deliver the right customers to the site. 

Bidding on Keywords

When selecting a keyword, advertisers state the amount they are willing to pay whenever a customer searches using that keyword and clicks on their ad. This amount is the keyword's maximum cost-per-click, or max CPC, bid amount. An advertiser sets this amount when they have opted to use manual CPC bidding. Manual CPC bidding is geared toward advertisers that want to maintain precise control over their keyword bids. It allows them to set bids at the ad group level, or for individual keywords. 

An alternative to manual CPC bidding is the automated Maximize Clicks bid strategy. Maximize Clicks is ideal for advertisers who don't want to spend much time setting bids but would like to get the most clicks possible for their ads within their budget. They don't need to specify individual bids for each keyword, ad group, or placement. Instead, they set a daily budget and allow the Google Ads system to place the max CPC bid for them automatically. Even with Maximize Clicks bidding, however, advertisers can still set a CPC bid limit. This option allows the advertiser to control the maximum amount they are willing to spend for each click.

Choosing Keywords

When choosing keywords, start with the obvious choices. For every ad there will be a set of terms that an advertiser can safely guess will be used to find their offering. Golfers will typically use the word "golf" in a search for golf clubs. 

There is much more to selecting effective keywords than the obvious choices, however. The ad creator should put himself in the mind of the customer. Try and think like the customer under various circumstances. If a pipe is leaking, the customer will not likely search for "smell good plumber." Those would not make good search terms for an emergency plumbing service. The customer may, however, type in words like "broken pipe" or "water leak." Those would be better search terms in this scenario. 

Selecting highly relevant search keywords has become a science. Many third-party firms offer assistance in selecting keywords. Google Ads provides a valuable keyword planner. This tool helps advertisers narrow keyword ideas and suggests keywords for your ad. A tool like this can help advertisers navigate around such things as branded terms that should be excluded. There is even a collaboration tool to assist marketing teams in the selection process. Sign in to your Google Ads account to experiment with their keyword planner. 

Negative Keywords

And then, there are negative keywords. Negative keywords are those terms for which an advertiser does not want their ad to display. Negative keywords can be beneficial in filtering out customers that are looking for something entirely different than what an ad is meant to offer. The example of negative keywords that Google cites is that of an optometrist who sells eyeglasses. In this case, the optometrist may want to add negative keywords like "wine glasses" or "drinking glasses." These latter terms are clearly not relevant to the optometrist. 

While keywords are eligible to match close variants, negative keywords are not. The keyword "flower" will match expressions with both "flower" and "flowers" in them. Those are close variants. For negative keywords, the opposite is true. For example, if you exclude the negative broad match keyword "flowers," ads won't be eligible to serve when a user searches "red flowers," but can serve if a user searches for "red flower."

Include negative keywords in your keyword advertising campaigns. A company that sells security systems does not want to pay for clicks from people interested in purchasing securities. 

Understanding How Google Interprets User Intent

Even for novice advertisers, there is more that can be done to optimize a search engine keyword campaign than just thinking of relevant keywords or using Google's keyword planner. Try performing a search on chosen keywords and then study the results. Modify the search and look again. This process gives an advertiser a sense of what content is ranking with specific keywords. If the results are direct competitors, those might be highly relevant keywords. If not, keep trying. Also remember that since keyword advertising is a bidding model, some keywords will cost more depending on what the competitors in that space are willing to pay. 

Google uses algorithms to interpret the intent of the user. A search for an item using a model number could be construed as an indication that the user is ready to make a purchase. Google’s data-driven intent interpreter might then decide that an ad leading to a page where this exact model can be purchased is most relevant. Conversely, a search string made up of general terms could be interpreted as being from someone who is just looking for more information on the product type. 

Understanding how Google interprets search strings can be useful to advertisers. Matching keywords with intent can increase the campaign's efficiency. 


Keyword advertising is decidedly one of the most effective ways to use an advertising budget. The risks are low because it is PPC. It is relatively simple because many tools exist to help get ads up and running quickly and with highly relevant keywords. It is generally less expensive than many other forms of advertising, and even the smallest companies can wade in confidently. 

While the positive aspects of keyword advertising outnumber the negatives, don't get lulled into complacency. Keyword advertising is, by nature, a competitive environment. Those competitors that have invested in understanding the complex nuances of keyword selection, placement, and schedules will have an advantage. They will inevitably bid more for the prime keywords in their space. 

Keyword advertising is a great tool to build and grow any business. Invest the time to understand it or get assistance from an expert. It will be worth it.

How Keyword Advertising Works


Daniel Wade

Daniel Wade

After working for multiple digital advertising agencies and managing hundreds of client accounts and spending millions of dollars via Google Ads, Facebook Ads, Native Ads and Direct Media Buying, I took things out on my own and started SparrowBoost. Now, my tight-knit team and I continue to get smarter and more efficient at running our own campaigns and we share our knowledge with you.

Learn more about SparrowBoost