The whole time I was in that business, I noticed how many problems derived from a single ironic fact: our customers and our consumers were different populations. This also was true for the media in which we placed our advertising. The people who paid for the advertising were not the same as the people who received it. Because readers, viewers and listeners paid nothing for the advertising they consumed, their direct influence on the advertising they consumed was about the same. Between advertisers and consumers, advertising was not a way for the twain to meet--that's what sales and promotion was for.
Doc Quoting Richard Holding of Google's Adwords program:
The premise behind the ads on the right side, Adwords, is an auction model. People bid on placement based on keywords. They set the maximum cost per click (CPC) they're willing to pay. In effect, they set their true reservation price: the maximum they're willing to pay. They pay no more than slightly above the next lowest competitor, so there's no winner's curse where you outbid everybody by an extreme margin. This creates a competitive marketplace where advertisers bid on leads generated for them by search results.
We take a relevancy factor into account. We rank the ad, based on the click-through rate. So a lower-bid ad with a higher click-through rate will be ranked, placed, higher in the list of results.
Doc argues that this model will change the face of advertising. I tend to disagree. While I applaud its effectiveness, it really is no different than a more sophisticated model of what the yellow pages industry terms "directional marketing." Directional marketing is simply a form of advertising where instead of the advertiser pushing a message out to the consumer, customers are seeking the advertiser. The auction and relevancy model at Google just makes this process easier and more customer-friendly.
There is still a need for businesses to generate brand recognition, awareness, preference and reinforcement. While there may be no customer demand for this messaging, that doesn't mean that good advertising is ineffective. The key to successful brand advertising and even direct response is to target an audience who will respond to, either the message or an offer, without being alienated or annoyed. It's just that we're in a world where this isn't being done effectively because frequency and intrusion is a primary strategy for many advertisers. The volume is being turned up, when really it's the composition that should be refined.