$21 billion. Billion.

That’s the amount of revenue that Google Ads generated last year. If you’re like me and 60% of all Internet surfers, you rely on Google everyday as your search engine of choice. Google has become such a reliable knowledge portal that it’s hard to recall what served as “home base” on the Web prior to their existence.

As critical as the Web is to my job, I’ve never thoroughly understood Google’s advertising structure beyond my basic involvement and research of pay-per-click (PPC) ads. Organic search and search engine optimization are of course crucial to understanding the Web, but the advertising aspect has always seemed a bit foreign to me.

I’ve never been one to give much thought to clicking on the sponsored links listed at the top and on the right sidebar of Google’s search results. Maybe it’s been my instinctual fear of viruses or phishing scams, but I’ve always viewed organic results as the “safe” play when determining where to navigate next on my search path.

Steven Levy’s Secret of Googlenomics article in the latest issue of Wired magazine opened my eyes up to a whole new understanding of how Google’s sponsored ads end up where they do. Aside from bidding on select keywords that connect ads to specific dates, time and geographic locations, Google also assesses the quality of an ad, examining how well the ad matches a search query, the load time and quality of content on an ad’s landing page, the ad’s past clickthrough rate and other key criteria. An ad’s rank on a search result page is then determined through a formula that multiplies the bid by the assigned quality score (1-10).

Aside from gaining some additional technical knowledge about PPC, Steven’s article speaks to the larger economic trend and overall impact of how Google’s auction-based marketplace creates a new “auction” each time a new search is processed.

It’s mindblowing to think about the wealth of data Google and social networking sites such as Facebook and Twitter (obviously on smaller scales and with Twitter having yet to capitalize on this data in a monetary fashion) are capturing on any given day. If you’re on Facebook, you’ve likely seen tailored “social ads” for products or activity on facebook that reflects your friends’ activity. The friend endorsement is a huge step forward and I’ll admit that it makes me far more likely to check out a particular link on Facebook.

Where does search and social network advertising go from here?

I’d love to hear any SEO/PPC or other online ad experts’ thoughts and  insight on where they see search and social network advertising going next.

-Scott