trevchaser said...how effective is it and how do costs actually work?
It works. That's why Google is gonna make nearly $10B in profit on $30B in revenue this year. It is the first advertising innovation in over a 100 years that changed the game -- it actually favors the advertiser instead of the media owner. It's hard to get your head around the size of economies that Google just walked up to and upended ("See ya later Mr. Murdoch! Nice buggy whip business you got there!")
As for costs (apart from the "pay attention and don't be careless" advice above), the beauty is that YOU set the price.
You determine how much you want to pay to bring a visitor to your site, and that's what you pay. Of course, if there are other sites that want to bring the same type of person to THEIR site, they they are going to be bidding against you. Then the fun begins!
There are people who are making very well-paying careers out of managing the details of this process (Google SEO, SEM, CPM, CPC, and CPA, to see the the incredible breadth and depth of information on online marketing). You could too -- see: https://adwords.google.com/support/aw/bin/static.py?hl=en&page=examstudy.cs
But my CEO-level advice is:
Google AdWords works.
Just like all your competitors will.