We all know that, these days, competition for organic traffic (traffic that lands on your site via unpaid sources) is fierce. There will always be someone doing more to beat you in the search rankings. A simple and effective way to improve your ranking is to pay for AdWords. It’s quick and easy to set up, you can control your expenditure to fit your budget, and sure enough, you start having people click through to your site from the ads you run.
The question is though, would they have discovered you anyway, without seeing and clicking on your ad?
More and more often, when we Google a specific organisation, we're served up the option to:
(a) click through to the site via their ad, or
(b) click through via their organic search result.
The first option will cost the organisation money, the second won't.
Personally I try to be considerate and ignore the ad, but I’d hazard a guess that many people will click the first thing on the page. As a result, that company is paying for a click that they would have had anyhow.
This is click cannibalisation – if you set up AdWords to display ads for things that are so distinctly “you” that your site will definitely come up in search results, then you’re going to be needlessly paying for clicks.
A smart use of AdWords is for a rival company to pay for ads based on keywords their competitor also ranks for (eg "digital agency Auckland"). This happens a little bit, but remains a pretty underutilised tool for search engine marketing.
AdWords is a tool to extend your search visibility beyond what your site currently allows. In most cases, you will mention your company name enough times on your site that the people searching for you will find you. So save your AdWords dollars for where they can give you real value – generic and/or competitive terms that will hit your competitors where it hurts.