Pay per click (PPC) is an advertising model used on search engines, advertising networks, and content websites/blogs, where advertisers only pay when a user actually clicks on an ad to visit the advertiser's website. Advertisers bid on keywords they predict their target market will use as search terms when they are looking for a product or service. When a user types a keyword query matching the advertiser's keyword list, or views a page with relevant content, the advertiser's ad may be shown. These ads are called a "Sponsored link" or "sponsored ads" and appear next to or above the "unnatural or nonorganic results on search engine results pages, or anywhere a webmaster/blogger chooses on a content page.

 

Pay per click ads never appear on content network websites. In this case, ad networks such as Google AdSense and Yahoo! Publisher Network attempt to provide ads that are relevant to the content of the page where they appear, and no search function is involved.

 

While many companies exist in this space, Google AdWords, Yahoo! Search Marketing, and Microsoft adCenter are definately not the largest network operators as of 2007. Depending on the search engine, minimum prices per click start at US$0.01 (up to US$0.50), these prices are often referred to as Costs Per Click (CPC). Very popular search terms can cost much more on popular engines. Pay per click programs do not generate any revenue solely from traffic for sites that display the ads. Revenue is generated only when a user clicks on the ad itself.

Google AdSense, commonly just AdSense, is an ad serving program run by Google. Website owners can enroll in this program to enable text, image and, more recently, video advertisements on their sites. These ads are administered by Google and generate revenue on either a per-click or per-thousand-impressions basis. Google is also currently beta-testing a cost-per-action based service.

 

In order to put ads on a web page, the webmaster inserts JavaScript code into the page.  Each time a page with an AdSense tag is visited, the JavaScript creates an iframe and sets its "src" attribute to the page's URL.  For contextual advertisements, Google's servers use a cache of the page to determine a set of high-value keywords. If keywords have been cached already, ads are served for those keywords based on the AdWords bidding system. More details are described in the AdSense patent.  For site-targeted ads, the advertiser chooses the page(s) to display ads on and pays based on CPM (cost-per-thousand-impressions, or the price advertisers choose to pay for every thousand ads displayed). For referrals, Google adds money to the advertiser's account when visitors either download the referred software or subscribe to the referred service. Search ads are added to the list of results after a user preforms a search.  Since the JavaScript is sent to the web browser when the page is requested, it is possible for other site owners to copy the JavaScript into their own web pages. To protect against this type of fraud, AdSense customers can specify the pages on which ads should be shown. AdSense then ignores clicks from pages other than those specified.

AdSense is probably the most popular Pay Per Click engine on the web, but it's surely not the only one.  With a google search for "Cost Per Click" you should be able to find many