Paid Placement, also referred to as "Paid for Performance", is the practice of mixing valid search results with paid advertisements on search engines.
The search engines that have followed some variant of this practice include:
AltaVista
AOL/Time-Warner
Direct Hit
Google
iWon
LookSmart
Microsoft
Terra Lycos
GoTo (also known as Overture)
Rawhide
Sprinks (About.com)
Some complains have been raised by Commercial Alert and consumer advoce Ralph Nader, claiming that search engines that mix paid ads within their search results without clearly marking them as such are in violation of the US Law concerning deceptive advertising.
Delivery Method
The typical method of delivering a paid advertisement is to display the advertisement based on the keyword or search string that the user is searching for.
Examples
Googles popular search engine allows advertisers to place their ads on a search results page as sponsored links.
GoTo lists their paid ads at the top of their search results page, as well as display the cost to the advertiser if the visiting user clicks on the link.
iWon displays their paid ads as featured listings at the top if their first page of search results.
History
GoTo was the first major search engine to adopt this practice on February 21, 1998. Paid Placement was not new then, but until it was adopted by GoTo, most major search engines avoided it because of the fear that their users would mistrust their search results.
The Future
With the decline of the rates for the traditional ad banner market, more and more search service providers are looking for new ways to generate revenue. After witnessing the growth of companies such as GoTo, who thrived with the introduction of paid placement, most search engines have begun using some form of paid placement and continue to search for ways to included paid content within their search results.