The Math Behind Google AdWords

PBS is running an article about Google AdWords. This article explains little bit about Adwords algorithm. According to the article, “AdWords was Google's response to the paid search placement program from Overture Systems, now part of Yahoo. Overture allowed web sites to pay for higher placement in searches that used certain words. Someone could pay a lot of money for the word "Cringely," for example, and have their totally non-Cringely web site appear above this one in Overture's search results. This really wasn't as bad as is seems as long as advertisers paid for words that really described their sites and most words weren't purchased.

Google's AdWords took the process a couple steps further. First, it segregated paid and unpaid search results by placing the paid results in a separate location where those results were identified as advertisements. But Google also embraced fully the concept of an ad and allowed the payers to make their own two-line pitch. Overall, the AdWord system was more honest and up-front with users about what was happening. And honesty has worked well for Google, with AdWords becoming a goldmine for the company.”