From AdWords to Demand-Side Platforms: A Glimpse into the Paid Search Ecosystem

How To

Search Engine Marketing (SEM) is a blanket term used to describe the various means of marketing a brand’s website and social assets via organic search engine optimization (SEO) and paid search.

In contrast to SEO, which relies on unpaid “organic” means to achieve its ends, paid search allows you to pay a fee to have your web or social assets displayed on the search engine results page (SERP) when someone queries a specific keyword or phrase into the search engine. Brands leverage paid search for many reasons, whether to drive traffic to their web or social sites, promote a product or service, or build awareness for their brand.

The paid search ecosystem is complex and varied. Given this, any deep dive into the subject would require a treatment that is well beyond the scope of this Discover More. Instead, the goal of this piece is to provide a glimpse into the paid search ecosystem by taking a closer look at four popular tools: Google AdWords, the Yahoo!/Bing Ad Network, Ad Retargeting, and Demand-Side Platforms (DSPs).

Google AdWords

The best way to understand how Google AdWords works is to gain a better understanding of the main components of any AdWords campaign: keywords, the Google Display Network, Ad Rank, Quality Score, and the Auction Bid process.


Keywords in AdWords function just as they do in organic search – begin by creating a list of keywords that people are most likely to use when searching for your product or service (specific, long-tail keyword phrases are better).

Google Display Network

Keywords can trigger your ads to appear next to search results on Google and other search engines or on other sites across the Internet through the Google Display Network – A group of more than a million websites, videos, and apps where your ads can appear. You can choose to have Google automatically determine where your ads appear by matching your keywords to websites in the Display Network, or you can pick specific placements yourself, setting the bids for each and selecting the sites where your ads might appear.

Ad Rank

The actual positioning of your ad is determined by a proprietary valuation system called Google Ad Rank. Ad Rank is calculated using your bid amount along with the components of your Quality Score (see below). Google actually recalculates your Ad Rank every time your ad competes in an auction, which means your ad positioning can fluctuate depending on the level of competition. Having said that, even if your competition enters a higher auction bid than yours, you can still win a higher position at a lower price by using highly relevant keywords, ads, and extensions ( ad extensions show extra business information with your ad, like an address, phone number, store rating, or more webpage links).

Quality Score

Along with bid amount, your Quality Score ultimately determines your Ad Rank positioning. Quality Score is an estimate of the quality of your ads, keywords, and landing page. Higher quality ads can lead to lower prices and better ad positions. The components of Quality Score (expected clickthrough rate, ad relevance, and landing page experience) are determined every time your keyword matches a customer’s search.

In other words, the more relevant your ads and landing pages are to the user, the more likely it is that you will earn a higher Quality Score and thus reap the benefits of a stronger Ad Rank, which include higher page positioning and lower cost-per-click, or CPC (i.e. the price you pay every time someone clicks on your ad).

Auction Bid Process

This video offers a general overview of how the Google AdWords auction system works from non-other than Hal Varian, Chief Economist at Google (who, as it turns out, is actually very good at explaining things).

You may also want to watch this video, which offers a high-level summary of AdWords and its benefits to businesses.

Check out this infographic from WordStream’s free PPC University course, which provides a clear explanation of how the Google AdWords auction works.

Yahoo!/Bing Network

The paid search advertising system utilized by the Yahoo!/Bing network through Bing Ads essentially mirrors Google AdWords, so much so that Bing Ads users are even able to import their Google AdWords accounts directly into Bing Ads.

Advertisers on Bing Ads still use keyword-driven ads in an auction-based system that relies on the same Ad Rank metric that is composed of a similar combination of bid amount and Quality Score. Although the Bing Ads Quality Score is ever-so-slightly different in form (they use keyword relevance, landing page relevance, and landing page quality to determine Quality Score), it is virtually the same in substance. This is no fluke; it is part of a conscious decision by the Bing Ads team to be more like AdWords.

Many believe that advertising on the Yahoo!/Bing network is money better spent for businesses. This excerpt from an Econsultancy post does a good job of summarizing why this is:

“Worldwide there are 489m unique searchers on the YBN, 94m of who don’t use Google. These searchers spend 137% more than the average searcher and 76% more than Google searchers worldwide. YBN isn’t suggesting you need to run campaigns on Google AND its own network, it’s suggesting that you run your campaigns solely on its network because users spend more money there.”

For those interested in reading how the Bing Ads team defines the Bing Ads auction process, this blog goes into more detail.

You also may want to check out Bing’s five-part “Getting Started” video series, which does a decent job of summarizing everything you need to know about Bing Ads in under 20 minutes.

Ad Retargeting

Many marketers are only now beginning to recognize the applicability of ad retargeting to all stages of the buying cycle; businesses can use ad retargeting to increase brand awareness, influence purchase decision, and optimize sales conversion.

How it Works

Retargeting is a simple process that relies on the use of small snippets of Javascript code to anonymously “follow” your target audience after they’ve left your web page and serve up relevant ads to them when they visit other sites.

Here’s how it works: you place a small, unobtrusive piece of code on your website (this code is sometimes referred to as a pixel). Every time a new visitor comes to your site, the code drops an anonymous cookie into their browser. When your visitors browse other web pages, the browser cookie lets your retargeting provider know when to serve ads, ensuring that your ads are served to only to people who have previously visited your site.

Benefit to Brands

The inherent efficiency of ad retargeting allows brands to run highly focused, measurable campaigns that can reach a broad audience.

Because ad retargeting is an especially effective branding and conversion optimization tool, it is often employed as part of a larger IDM strategy, working in concert with paid and organic search, content, social, and email marketing to help businesses raise brand awareness and increase sales conversion. By inserting a retargeting pixel on landing pages or thank you pages to retargeted new prospects and existing customers will additional product/service offers. Brands utilizing ad retargeting often enjoy higher click-through-rates (CTRs). In fact, it’s not uncommon to see CTRs in the range of 0.30-0.95% – which is 3-10 times higher than the industry average.

Ad retargeting is still in its early days; the majority of web users aren’t even aware that they’re being retargeted to. Brands can use this to their advantage by using ad retargeting to build brand trust and foster brand awareness in a seemingly “organic” fashion.

For further insight into ad retargeting best practices, check out this post from Ad ReTargeter.

Demand Side Platforms (DSPs)

As Ratko Vidakovic notes in his excellent blog post for Marketing Land, there is a lot of confusion about the difference between Google AdWords and Demand Side Platforms. As a hub for publishers to connect open ad space with demand from the brand side of the equation, the AdWords platform and DSPs both fulfill similar roles. However, whereas platforms like Google AdWords and Bing Ads were built around search, keywords, and text ads, DSPs, by contrast, were purposely designed around building display ad campaigns (i.e. any “non-mobile” ad campaigns for laptops, desktops, and other devices running browsers like Chrome, Internet Explorer, and Firefox) with greater reach, targeting, and real-time capabilities.

Greater Reach

DSPs centralize access to inventory from well over a dozen supply-side platforms (SSPs), enabling access to massive pools of billions of impressions per day. Throw in the addition of Facebook Exchange (FBX), and is no disputing that DSPs have greater reach. This allows companies to display their ads to a broader audience that stretches well beyond the Google Display Network.


Both DSPs and Google/Bing provide fairly robust ad targeting functionality. While AdWords and Bing allow contextual targeting, or the practice of targeting specific URLs based on the topic of the page by keyword or category, DSPs generally only allow for targeting by category.

However, these targeting segments include everything from demographic data (age, gender, income, marital status, education level, etc.) to psychographic data (likes and interests) to behavioral data (e.g., company they bank with, brand of car they drive, who they use for insurance, etc.).

Because the scope of targeting options using cookie data is practically limitless, the easiest way to achieve scale is through DSPs. The massive amount of browser-enabled cookie data collected by DSPs allows marketers to target by hundreds or even thousands of criteria.

Unlike Google AdWords, most DSPs use the CPM pricing model instead of the CPC model. CPM, which stands for Cost-Per-Mille (Mille is Latin for “thousand”), refers to the price based on 1,000 impressions. Almost all Publishers prefer to bill on a CPM basis because it is an inventory based product rather than a performance-based product.

Real-Time Reporting

Many DSPs also provide real-time data reporting, a critical functionality for brands trying to optimize real-time marketing campaigns.

In AdWords, there is a reporting delay of roughly 2-3 hours for some stats (such as clicks, impressions, and conversions), while other metrics are only updated once per day. The footer of the AdWords interface includes the following disclosure in small print:

Reporting is not real-time. Clicks and impressions received in the last three hours may not be included here. There is an 18+ hour delay for some metrics.

Additional Resources

If you’re considering setting up your own display advertising campaign, you may want to check out this post from Ratko Vidakovic on the four strategic phases of lean advertising before you get started.

For a high-level primer on the emerging (and already complex) mobile advertising ecosystem, check out this post from independent mobile ad exchange, Tapsense.

If you prefer to learn by watching, here is a simple four-minute videoexplaining the high points of DSPs and programmic buying.

Finally, if you want to be truly blown away by the sheer complexity of real-time display advertising, check out this video, entitled “The Life of a Programmatic RTB Ad Impression.”


  1. If it is so effective, why are more brands not utilizing ad retargeting?
  2. How will the consumer shift to mobile devices and search & discovery apps impact the future of paid search?
  3. Should smaller companies with limited resources experiment with paid search or targeted social ads? What are the benefits of each?