A program (free) that allows online publishers (websites, stores, blogs, etc) to make money by placing relevant ads on their site. Websites earn the money through people clicking on the ads. You can also easily add google search to your site through this program, and earn money through the ads displayed on the search results page. Basically, Google is paying websites to allow them to put ads on their site.
AdWords
Google's program that allows business to buy ads to be displayed on websites (either Google's or Google's ads network). You only have to pay if someone clicks on your ad.
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