I had a conversation recently that made me think. When I use a search engine be it Google or Live I totally ignore the subsidised links as I do when I go to a page where someone is using Google Ads. I naturally trust non sponsored links much more than sponsored links.
However, speaking to other people they first look at the sponsored links and then the raw links. I am wondering if I am in the minority or majority ? Clearly a lot people click those Google advertising supported links as they make a lot of money that way.
When I was looking at a web business, I investigated the cost of Yahoo banner advertising: at the top of the search results they rotate the adverts to give you 1-in-n. It was stupidly expensive (I cant remember exactly but it was thousands of dollars), and I wouldn't recommend it unless you already have marketing campaign covering cheaper (or even better, free) media or internet exposure.
What really makes me sceptical though, and to answer your question, these days I never clickthrough links. They are surprisingly irrelevant to the search query and they generally lead to badly designed and difficult to navigate websites. Its easier to sift through your search results themselves.
I read somewhere that 70% of users are unaware that the google adwords entries are sponsored.
Adwords is not easy and Google make a fortune from advertisers who don't bother to find out how to use it effectively. But I would say Adwords is probably one of the most effect form of advertising there is. In short you get only targeted traffic, if they don't click you don't pay, you decide the cost and you get almost instant feedback...
I used to run a small webshop and had to use yahoo sponsored links to be in with a chance of generating business and traffic on my website, the cost was high and for a fledgling business was hard to sustain, in the end the cost of this along with other issues caused us to shut it down.
Also if you have competitors also using sponsored links, who's to say they don't just keep clicking on your link which is charged at each click