One of the advantages of Google Ads (formerly Google AdWords) is the demand-driven cost structure. For contrast, let me explain the cost structure of traditional advertising.

Let’s go back to the 1970’s. The main channels for advertising were print (e.g., newspapers and magazines), radio, television, and signs (e.g., billboards). To place an ad on any of these channels, there was a cost. The cost was roughly associated with the size of the audience you could reach with the ad. The cost was agreed upon before the ad was run, and the advertiser paid the agreed upon cost regardless of the number of people who actually saw the ad. Let’s call this the committed cost structure for advertising.

With the committed cost structure for ads, managers would run an ad campaign, evaluate the results and then consider switching ad funds to a different advertising opportunity—maybe a different channel—to see if the results would improve or decline. Testing an advertising opportunity was very risky because the committed cost was based on an expectation of success. If the ad test was not successful, or less successful than expected, the ad manager spent too much for that ad campaign and effectively wasted part of the ad budget.

Now let me explain the demand-driven cost structure for pay-per-click (PPC) ads on Google Search Engine Result Pages (SERPs). PPC ads on Google SERPs are triggered by keywords chosen by the person designing the PPC campaign on the Google Ads platform. A given ad appears on a Google SERP when the search query contains a keyword trigger (Note: most keyword triggers are now phrases and not single words). The position and cost for a PPC ad on a Google SERP is determined by an auction process in the milliseconds before the SERP is displayed in the viewer’s browser, and the advertiser only pays for the ad if the person viewing the SERP clicks on the ad. In summary, three things must happen before an advertiser incurs a cost for a PPC ad on a Google SERP: 1) the keyword trigger must be in the search query, 2) the ad must rank high enough in the auction process to be shown on the SERP, and 3) the viewer of the SERP must click on the ad. If any of these three steps does not occur, the advertiser does not incur a cost for the ad. This is a demand-driven cost structure because the cost is only incurred when there is demand for information and that demand—or inquiry—includes the three steps described here.

One advantage of this demand-driven cost structure for PPC ads on Google SERPs is the reduction of risk for testing ad campaigns. An advertising manager can create a test with an ad and a list of keyword triggers and only incur a cost if the three steps described above happen. If there is no demand, there is no incurred cost. The demand-driven cost structure of PPC ads on Google SERPs provides advertising managers with a new opportunity to explore campaign themes and optimize ad spending with a significantly reduced risk of wasting ad funds.

If you would like to discuss how you can benefit from PPC ads on Google SERPs, please contact me at