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Keyword advertising refers to any advertising that is linked to specific words or phrases. Common forms of keyword advertising are known by many other terms including pay per click (PPC) and cost per action (CPA). There are multiple variations each starting with "pay per" or "cost per" such as pay per action (PPA), pay per cost (PPC), cost per mille (CPM).
It is believed that Yahoo! first made available targeted keyword advertising to its customers. In 1996, Chip Royce, head of online marketing for InterZine Productions of Boca Raton, Florida, approached Yahoo!'s sales agent (Flycast Communications) suggesting ads around keyword results to provide a more effective, targeted advertising within Yahoo!'s search results. Yahoo! obliged placing targeted ad banners when the keyword "Golf" was searched by Yahoo! users. Yahoo! later turned this opportunity into a formal marketing program for its entire customer base and promoted this in a July 1996 article in the now defunct 'Internet World' magazine.
Google AdWords is the most well-known form of keyword advertising. Google displays search ads specifically targeted to the word(s) typed into a search box. These keyword targeted ads also appear on content sites based on Google's system's interpretation of the subject matter on each page of the site. This is known as contextual advertising.
A less common type of keyword advertising hyper-links individual words within the text of a page to small pop-ups displayed by mouseover. Advertising of this type is offered by Kontera, Vibrant Media, and LinkWorth. Kontera's version is named ContentLink, Vibrant Media's version is called IntelliTXT and LinkWorth's version is called LinkWords. They refer to their product as in-text placement. Advertisers choosing to test this type will want to exercise moderation to increase Internet user acceptance.
Pixel advertising, popularized by The Million Dollar Homepage is another type of keyword advertising. In pixel advertising, graphic advertising space is sold on a site. Often advertisers are charged per pixel, with a minimum of 10 by 10 pixel blocks. With keyword advertising, advertisers buy a text link on an advertising site. When the advertising space is sold out, a "word cloud" is formed, with an apparently random group of words, each linking to another internet site. Two of the first keyword advertising sites were 500words.com and awordsworth1000pictures.com, which were launched in mid-2006.
Keyword advertising is based on a principle of search engine optimization, which states that the anchor text of incoming hyperlinks to a site will cause search engines to associate the site with that term and improve the site's search engine ranking for that keyword.
There have been a number of trademark infringement cases brought by brand owners and companies concerned with how other keyword advertisers used their trademarks or brands in pay-per click or keyword advertising. Courts in the U.S. and around the world have been slow to issue clear guidance on the issue of whether use of trademarks as keywords constitutes trademark infringement. This lack of guidance, however, may be partially due to the fact that the majority of keyword advertising cases are settled out of court and do not proceed to trial. This leaves courts unable to make legal decisions on issues brought in these cases. As a result, there are still many unanswered questions on the issue of whether the sale or purchase and use of a trademark as a keyword to trigger Internet advertisements is trademark infringement.
- Bananabay II, 2011 decision of the Federal Court of Justice of Germany (BGH)
- Rosso, Mark; Jansen, Bernard (Jim) (August 2010), "Brand Names as Keywords in Sponsored Search Advertising", Communications of the Association for Information Systems 27 (1): 81–98