1. Google's Official Definition
According to Google, this is the official definition:
"Google AdSense is a fast and easy way for website publishers of all sizes to display relevant Google ads on their website's content pages and earn money."
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So, what is AdSense? If you have been living in this century, you should probably have already seen Google Ads in a lot of websites. The example of Google AdSense advertisements below shows two different types of advertisements. Both of them are labeled as "Ads by Google."
2. Google's Criteria for Displaying Keywords
What are the criteria used by Google to display these keywords?
Here is the answer: "the ads are related to what your visitors are looking for on your site — or matched to the characteristics and interests of the visitors your content attracts." In other words, it is based upon the CONTENT of your website.
3. Google AdWords V.S. AdSense
Let's imagine that you want to promote your new website. One simple and fast way is to use Google AdWords. What you will do is pick a few keywords that are related to your website and put a price tag on the keywords.
You have a choice to either pay by impressions or by pay-per-click. Assuming that you are targeting the keyword "register a domain name," Google will display your ads on some of the websites participating in the Google AdSense network with content related to the keyword. It could be an article about "How to register a domain name?", or a blog entry on domain names.
Now, this is the exciting part, if any visitor of that site clicks on your ads, you will have to PAY the amount you have agreed with Google. On the other hand, if you are the owner of the site, you will be paid in accordance with Google's secret formula that nobody knows.
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