Adwords: The Nearest Thing to a Perfect Market

It took Google some time to figure out how to make money with their innovative search algorithm. When they figured it out it was one hell of a model. Although they didn't invent search advertising, but they are the ones the most famous for superbly helping advertisers, and later on publishers to make great profits.
One of the biggest challenges in advertising is reaching your message to the right audience at the right time, which is something quite difficult to achieve with the traditional advertising methods. With AdWords, your ad appears next to search results exactly when people are interested in what you have to sell.
Some of the things that make it a great system, is that there is no fixed price for ad placement, and you don't have to negotiate for prices (you can't even if you wanted). The self-regulating system makes you pay only when people click on your ad and visit your website, so you only pay for visitors coming to your site.
The really cool thing is how the pricing is determined. First you decide the maximum amount of money you are ready to pay for a click, and they never charge you more than that amount. Second, Google's discounter makes sure to let you pay less than the maximum amount you are willing to pay, thus rewarding good and relevant advertising instead of just deep pockets.
Here is the main advantage for advertisers who have relevant interesting stuff to perform better than their high-budget counter parts.
What's more is that if your ads don't achieve a certain click-through ratio they will stop showing since this means that they are not relevant for searchers. How many companies will not allow you to advertise because you are not creating good enough stuff?!
What makes AdWords resemble a perfect market, is that prices are determined naturally, and vary according to the hidden forces of supply and demand. More importantly the most adaptive and relevant advertiser wins at the end, and not the most powerful.
Strict editorial rules are applied to acceptable ads. They give a first impression of a tough system, but a second look proves that these standards are for the advertiser's benefit.
For example, the use of superlatives is prohibited, you cannot say the word "best" in your ad copy. This only shows that you are boasting and it doesn't actually convey information for the readers. "Award-winning" on the other hand is acceptable and allows the reader to decide for themselves whether or not to trust your ad.
Another example is prohibiting advertisers from using the exclamation mark more than once in each ad, and it is not accepted in the headline of the ad. Studies show that using the exclamation mark in real estate ads, gives the impression that the house on sale is not as valuable as the seller is claiming. "Why is he stressing the facts so strongly, I can read the information myself!"
A new feature was recently launched allows advertisers to use AdWords for market research. The search queries report gives you a list of all the queries that have triggered your ads, and got you clicks. Two main benefits of this; first, you get to know what keywords are triggering your ads (when you set your keywords to broad match, related words can also trigger your ads to show). Second, you get to know what people are really looking for, and what percentage of them is looking for a certain keyword(s), or product.
I have used this tool with on account, and got more than 900,000 queries after spending around $5,000 for the website I was working on. This is a huge number and the insights it gave us were invaluable.