AdSense is an advertising system owned by Google that places ads on websites. The ads are generally automatically selected to be relevant to the reader either because they are related to the content of the website they appear on OR because they are related to websites the reader has previously shown an interest in.

Taking the first of these targeting methods, Google knows what your website is about That, after all, is a key part of being a search engine. So if your website is about unicycles, Google will know it is. Businesses selling unicycles advertise on Google’s search engine using keywords to target people who are looking to buy unicycles. The conceptual leap is simply to realise that it also makes sense to display ads for unicycles on websites about unicycles as well. Google then developed complex systems to make the process of placing ads on sites very easy and in such a way that all the website owners had to do was add some code to their site. Google would look after making sure the ads were relevant.

The second way of targeting ads is a little more complicated and relies on advertisers using a technique called remarketing. Remarketing allows advertisers to show ads to people who have been on their website via ads on third-party websites. You’ve probably experienced seeing ads for sites you have visited follow you round on the internet as you browse other sites. The basic aim from an advertiser’s perspective is to get you to return the their site and either buy their products or turn into a sales lead in some way.

So how do the finances work? When an ad gets clicked, Google charges the advertiser and shares the revenue with the website owner. The neat thing is that Google uses its machine learning capabilities to select those ads that will generate the most revenue. The total revenue generated is a function of the amount they charge per click times the number of clicks they get and this is what Google seeks to optimise.

The amount they charge per click is determined by the advertisers and depends on how many people are competing to display ads. Generally the more competition, the harder advertisers will have to bid for clicks and so the more revenue you get from each click on an ad.

Competition is steepest for high value topics because the value of a click for an advertiser can be very high. If you sell something that has low profit margins and is low cost, you won’t want to bid much for clicks and your competitors will feel the same way. Consequently websites about low value topics find it extremely hard to generate much revenue from AdSense.

Conversely, if your website is about luxury goods or high value items like class action attorneys, businesses in those market that understand the value of visitors to their sites will bid very hard to get their ads displayed. This can result in AdSense clicks worth tens of dollars a time!