The huge-scale real-time auctions that power the Google profit machine

I'd hesitate at calling AdWords an auction. It is a non-transparent black box process, some aspects of which are auction-like. (And I <i>like</i> Google.)<p>If it were an auction, the highest bid would win every time. That is catastrophically untrue with AdWords -- quality score, account history, Google's desire for variety, and a few hundred types of secret sauce mean that lower bids routinely float over higher bids for the same keyword.<p>Contrary to what many people believe, Google also sets essentially a reserve price on their keywords -- if you manage to discover a credit card keyword that nobody has ever used before (highly unlikely, but roll with it), that is probably worth well in excess of a dollar per click to you. Will you get it for 5 cents? Nope. Google will establish the minimum somewhere close to neighboring keywords, and you'll end up paying over a buck to be the only add on the screen. (Real auctions have a word for when you're bidding against the house, but I'll try to be polite.)

"Varian is an expert on what may be the most successful business idea in history: AdWords"<p>How about selling oil?

<i>Varian is an expert on what may be the most successful business idea in history: AdWords...</i><p>And there I stopped reading.

"Why does Google give away products like its browser, its apps, and the Android operating system for mobile phones? Anything that increases Internet use ultimately enriches Google, Varian says. And since using the Web without using Google is like dining at In-N-Out without ordering a hamburger, more eyeballs on the Web lead inexorably to more ad sales for Google."<p>Very silly. Google's browser generates searches in the title bar for free which Google pays Firefox and the others for. Mail, Talk and the apps are vehicles for showing ads to people. The extra internet use is <i>just not</i> the primary purpose of these things. What confuses people, even Wired, who should know better, is that not <i>everything</i> Google does has an immediate payoff every time. They're willing to develop something, like maybe Android, which can make them money later, maybe.