Paid placement is works quite simply. Advertisers pay search engines to list their ads or websites at a higher rank when the user queries certain keywords. Most major search engines carry paid placement listings, and advertisers are guaranteed a higher ranking.
Should searchers fear this? Should they worry that their search results are going to be biased towards those webmasters who have paid to have their websites listed high? Not really. Most paid placement websites are given a special, identifiable, separate position in on the SERP. The system works like newspapers. Newspapers have portions (editorials) which are uninfluenced by ads and they have separate pages only for ads. You might read the pages for the regular news, but you might find some ads interesting and useful as well.
So it is with search engines. Most people know what a paid search ad, given a separate ‘special place’ through payment, looks like.
A key point to remember here is that advertisers pay to display their ads separately on the SERP when the user queries a certain keyword. So an ad for ‘Reebok shoes’ would only be displayed on an SERP if the user queries ‘sports shoes’, and not when the user queries any unrelated keywords. In this way, the advertiser is effectively ‘buying’ part of the keyword from the search engine! They are bidding on keywords, agreeing to pay certain amounts for each person that clicks the ad. Of course, the amount bid for a particular keyword determines who high up the ad will be places, the highest bidder for the keyword being places higher on the page.
Different search engines call ‘paid listings; different things. Some call them “sponsored listings”, “paid search ads”, “pay for performance” or “paid search ads”. They are also called “cost per click (CPC) listings” or “pay per click (PPC) listings”. These two terms indicate the fact that paid listings are paid for by the advertisers only if someone clicks on their ads.
Such ads targeted to specific search terms, not interfering with a user’s regular search have their own advantages. It benefits the advertiser; because he gets to focus his advertisements on people who are already interested in knowing more about the kind of products he sells (A flower seller has his ads directly presented to those who are searching for flowers). Besides, the advertiser does not need to pay until and unless someone clicks on his ad! For the searcher, there is a clear demarcation between actual unpaid listings and sponsored sites. Unlike in-your-face pop-ups or garish banner, sponsored listings are more pleasing to the eye!
On the downside, this pay-per-click model leaves an advertiser vulnerable to click fraud. Click frauds are dubious clicks from unknown sources with no intention of buying what is advertised. Such click frauds drive up the cost for an advertiser with no offsetting sales revenue. In fact, Google, had agreed to settle a lawsuit of up to $90 million to marketers who were charged for invalid clicks.