John Kelley from Google Ann Arbor was in Jackson yesterday telling a room of 150 people about how Google makes its billions of dollars a year. Almost all of it comes from their advertising auction known as Google AdWords.

If you’re not familiar with how it works, here’s a quick breakdown.

You set up an account with Google, choose some keywords or phrases, and then make a bid of how much you are willing to pay to show up in the right hand column when someone uses the Google search engine with your chosen keyword.

The cool thing is, just showing up on the right doesn’t cost you a penny. You only pay when someone actually clicks on the link. And you only pay whatever you were willing to bid.

For instance, you might choose the keyword “toys” and bid a maximum of $7. When someone types “toys” into a Google search, eight links show up in the right hand column on the first page. Those eight are in order by how much they were willing to bid. If two other people bid higher, you’ll be third on that list. If no one bid higher, you’ll be at the top, and at a rate only slightly more than the next highest bidder.

Again, you only pay if someone actually clicks on your link.

The beauty of this system is that you only pay for the ads that work, that get people to your website. And you only pay what the market will bear. It is supply and demand at it’s greatest. A truly capitalist product that allows small mom & pop shops to compete with large national corporations.

And since it regularly brings in billions of dollars it must work well, right?

Maybe, maybe not. Like all advertising, it comes down to how you use it.

Yes, it is one of the most measurable forms of advertising. You know how much you paid to get traffic and how much revenue that traffic generated. Yes, it is relatively easy to get started and easily tweaked to make it work better.

No, it doesn’t work for everyone. In fact, there are two groups for which Adwords would be a lousy investment.

• Businesses who don’t have a website (if you don’t have a website, you should read this.)
• Businesses who don’t generate revenue directly from their website.

If you fall into either of these categories, Adwords won’t help you grow one bit.

Think about it this way…

The person searching online for a retail product willing to click on a right hand sponsored link is looking for an immediate solution. They are typically looking to make a purchase right away. If you don’t sell online, they’re hitting that back button as quickly as they can.

You won the auction, but lost the sale (and the ad money).

If you’re going to do Google Adwords, here are some suggestions:

• Do reverse searches to see what keywords are most being used in your category.
• Only sign up for keywords that relate directly to the products you sell online. Otherwise you’re getting a lot of the wrong traffic
• Write many different phrases for your posts (you get 94 characters for your description) and constantly measure and tweak to see which ones get clicked most often.
• Measure, measure, measure. Change where people land on your website, see how long they stay, if they buy and where they exit. You will learn quickly where your website breaks down in the sales process.

As you measure your Return On Investment you’ll get a clearer picture of whether or not this program is working for you. Unlike traditional advertising where your only measurement is if business is going up or down overall, at least with Adwords you’ll know what works and what doesn’t. The old advertising joke is that half of your ads work and half don’t, you just don’t know which half. With Adwords you’ll know (for better or for worse).

If your retail business is strictly brick & mortar – no online presence – Adwords isn’t for you. If you are using your advertising to brand your store, Adwords isn’t for you. If you aren’t up for constantly measuring and tweaking your results, Adwords isn’t for you. But if selling online is your primary goal, it could work – and work well. Billions of dollars can’t all be wrong.

Do you agree or disagree?

-Phil