A Google Groups thread, an advertiser is asking for advice on if Google supports the keyword insertion technique within the display URL.
Keyword inserting is a method of dynamically inserting the searchers query in your search ad. For example, if you sell computer electronics and someone searches on [MP3s], you can tell Google to show MP3s in the title, description or display URL of your ad automatically. No, you do not need to create an individual ad that matches on that keyword with the specific MP3s text in the ad copy. It can be done automatically.
But should you deploy dynamic keyword insertion in your display URL? Google seems not to recommend it for all advertisers.
AdWordsPro Sarah said in that Google Groups thread:
Although this seems like a slick trick, I don't recommend using keyword insertion in the display URL. If you do, be very careful that all of the keywords in the ad group list work with this format.
I did some searching around to find signs of advertisers that may deploy this technique and found this ad:
I hovered my mouse over the ad and noticed that the destination URL was not the exact same as the display URL. Now, although I don't know if this was a manual ad or an ad that used keyword insertion - this ad may have been using keyword insertion. As you can see, it bolds the keyword MP3, because that is what I searched on. Any extra bolding may increase your ad's visibility, thus increasing your CTR and possibly increasing your quality score - which in turn lowers your CPC and increases your ad position. Now, who said PPC isn't rocket science. ;-)
Forum discussion at Google Groups.