Pay Per Click Search Engine Basics

Pay per click search engines let you set up an account with an initial deposit, and then bid for the top positions in the search results pages for keywords or key phrases that you are interested in. Your bid will typically be set in cents or dollars per click. When a prospect clicks on your link, you are charged the amount of that bid.

Naturally, the keyphrases that people search for the most will command the highest bids.
Some pay per click search engines operate their own brand of search engine. However, the bulk of the traffic to bidding web sites doesn't come directly from them but from partner sites, usually large portal sites like Yahoo!, MSN or AOL. Links to bidding web sites will appear at the top or at the side of the search results page, clearly marked as "sponsor results" or "sponsor links".
For example, Overture (formerly GoTo), by far the most popular pay per click search engine, provides sponsored listings to numerous partner sites, among them: America Online, Altavista, Direct Hit, Excite, HotBot, iWon, Lycos, Netscape, and Yahoo! The highest bidders will achieve the top position for their selected keywords.
With Lookssmart, you pay a flat fee per click ($0.15 at the time of this writing) and the pages with higher relevance rise to the top.  Looksmart provides sponsored search results to a high quality core of sites like MSN, Altavista, About.com, Netscape and CNN.
Another important Pay Per Click search engine is Kanoodle.   Kanoodle goes beyond offering traditional sponsored results in search engines, by offering their ContextTarget™ service.  ContextTarget™ puts your ads alongside editorial content instead of within search results. This allows you to reach potential consumers at the exact time they are engaged and reading relevant content on their favorite sites.   At the time of this writing, Kanoodle was offering new customers it's attractive $5 Kanoodle Free Trial.
Google, the king of search engines, has recently launched its own pay per click service, called Google Adwords. At the time of this writing, Google Adwords provided sponsored search results to America Online, AskJeeves, Earthlink, and to Google itself. Google operates a little differently than Overture and Looksmart, in the sense that the top positions are determined by a combination of high bids and high click through rates, so nobody can lock the top positions solely by bidding high.

  

One thing to keep in mind, though, is that usually only the top two or three bidders for a selected key phrase will be displayed in the search results page of the partner sites. This means that if your page is in fourth position or lower, your link will most likely not be displayed on the top partner sites, and your traffic will be significantly less. That explains the large difference in price between a top position and a lesser one.

Since bidding for the top positions is so expensive, you want to make your link text as specific as possible, to attract only the most qualified, targeted traffic. If you make your link text too generic and bid for a top position, you may end up receiving lots of clicks from people who are not really interested in your product, and who click on your link only out of curiosity. That is also the reason why you have to select very specific keywords.
To know how much to bid for a top position, you have to have an idea of your expected conversion rate and the gross profit margin of your product. Let say that you sell computer books at a gross profit of $4 per book, and your conversion rate is 3% (meaning that 3 out of 100 people who click on your link actually buy a book). Under this assumption, if 100 people clicked on your link, you would sell three books, making a total gross profit of $12. This means that, to break even, each click must be worth $0.12. If you bid less than $0.12 per click, you make money. If you bid more, you lose money.
Pay per click search engines provide you with real time reports that tell you how much are people bidding for specific keywords. They also provide you with Keyword Suggestion Tools to assist you in selecting the right keywords or keyphrases (to see an example, check Overture's Keyword Suggestion Tool). One of the most important functions of this tool is to show you alternative keyphrases, which may be cheaper to bid for than the ones you had originally selected.
In summary, using pay per click search engines is the quickest and easiest way to gain the top search positions in the major search engines. It can also be very costly, so it is important that it be handled properly.