To show why Google Adwords can be a good advertising vehicle for your business, services, or goods, let's take the example of a bakery cafe who has an website.  

Just because you have a website, don't expect people to be able to find you.  The notation of "if you build it, they will come" is certainly not true on the Internet.  The Internet simply is too big.  If you type "bakery" or "bakery cafe" in a search engine, you get thousands of results -- all of whom want to be listed first.   The chances of your site come up in the first page of the listing is slim at best. 

So what do you do? One way is write an ad and then pay Google to distribute and publish this ad in its search results listings. This is known as "search advertising".  The ad typically consists of a couple of lines of text and a link destination to your website when someone clicks on the ad.

In Google's search results page, you see the main search result in the large main column. This is known as the "organic search results". The sites that comes up there are determined by Google's proprietary search algorithm as to what pages Google thinks the person's search is looking for. On the narrower right-hand column are the sponsored listings. These are ads that you as a website owner write that you want Google to show in its "sponsored listing". Google Adwords is a "Pay Per Click" advertising program. You pay Google whenever someone clicks on your ad that is shown in the "sponsored listing" -- not when Google shows your ad.

"Sponsored Listing" means that what shows up there are not natural (or organic search results). What shows up in the sponsored listing is motivated by the amount of amount of money an advertiser is willing to spend to have Google place their ad there.

Sometimes, you will see "sponsored listing" not only in the right-hand column, but you may see a sponsored listing in the main column above the organic search results. This is a highly valuable well-placed ad location so you can expect to pay more to be listed there.

In addition to having Google show you ad in sponsored listing of the search result page, you can also have Google show your ad in any of its relevant "affiliated content sites". Google affiliated content sites are websites whose owner have signed up for Google's AdSense program and are placing Google ads on their site as a way of monetizing their sites. In essence, when someone clicks on one of those Google ads on some site. You as advertiser pays Google for placing that ad there and leading to a click of the ad which brings the visitor to your "destination landing page" on your bakery cafe website. Then Google in turn pays (a smaller amount) to the website publisher for use of a portion of the publisher's website space in order to place the Google ad there. So now you see how Google makes money from advertising.

How much you pay per click may depend on the competitiveness of your targeted search keywords as well as the click-through rate of your ads. In general on the low end, expect to pay about five cents per click for ads in the sponsored search listing. Competitive keywords and spots can cost 50 cents and even dollars per click.

The cost per click are in general more expensive in the search result ads than in the content site ads. This is because ads in the search result pages are more valuable because people are actively searching for something as opposed to causally browsing some website publisher's site.

The thought of paying a dollar to Google for every time someone clicks on your ad may seem scary. Therefore in your AdWords campaign manager, you can specify what is the maximum amount you want to pay Google for each click. As an example, five cents would on the low end of the spectrum and 20 cents per click is more typical.

The more you are willing to spend the more aggressive Google will try to display your ad. So if you are willing to spend more, you will see your ad display more often and in better ad placements than someone who is willing to spend less -- with all other things being equal (because there are other factors involved in Google's algorithm). That is one factor in determining the order of the ads shown in the sponsored search listings. This is known as "bidding for ad placement".  If you are willing to spend more than your competitor on the Cost Per Click for an ad, then you will in general get a better ad placement than your competitor.

Even with a maximum pay per click amount constraint in place, you can still end up spending a lot if a lot of people clicks on your ads. That is why Google Adwords also let you specify a maximum dollar cap per day that you are willing to spend. So in the Adwords program, you can tell Google that you don't want to spend more than $10 per day on advertising. On the low end, you can even start off with a max cap of a dollar a day. Google will stop showing your ad if and when it reaches that limit.

The nice feature of AdWords is that you can adjust the amount of advertising depending on your need for advertising and your budget. In the beginning, it is good to be frugal with your advertising spending to see how it goes first. And if you get good results, you can simply log into AdWords program and increase that spending causing Google to display your ads more often. And then if you get too much customers from your ads, you can throttle back on the advertising and can even stop the advertising entirely at any time.

One concern that advertisers worry about is when people click on your ads for non-legitimate reasons.  What if someone (maybe a competitor) is clicking on my ads in the attempt to use up my advertising budget?   Well, Google has thought of that possibility.  This is known as "click fraud" and Google has algorithms in place to detect this and will not deduct your advertising budget if it suspects there is click fraud involved.

In general, AdWords is intended to be used to drive traffic to your own website, products, and services. There are some people who have signed up with affiliate programs (such as Amazon Associates program) whereby they get a commission for generating sales for other merchant's products. They may be tempted to use AdWords to drive traffic to affiliate sites (such as Amazon.com). You really have to read the fine print of the affiliate program. Many affiliate programs do not allow this. Amazon is one that does not allow this and does not pay out a commission if you have an search ad that leads directly to their Amazon.com site. But it is okay to have a search ad that leads to your own website which in turn has an affiliate link to the Amazon site. Furthermore, on the right column of the Google AdWords sponsored search results, Google will never place more than one ad that goes to the same URL domain destination. So if Amazon themselves are listed in the sponsored listing (which I have seen their ads there before), there would not be another ad further down on the same page that goes to Amazon site.

• Google Adwords Office Site
• More AdWords Success Stories
• Google AdWords Demo
• Google AdWords Blog
• Video of Perry Marshall's AdWords Seminar

Note: Author may receive Amazon and Google revenues via display ads and links in this article.