Goole (I left off the last “g” for GREED)

August 9th, 2007 Jackie

I noticed an interesting Google Adwords alert when I logged into one of my client’s accounts this morning. Per Google:

“Coming Soon: Improvement to the Top Ad Placement Formula
In a few weeks, we’ll improve how ads get promoted to top positions above Google search results, giving you greater control over the placement of your highest quality ads.”

This caught my attention, so I surfed over to the Google Adwords Blog to see if there was more info about this, and of course there was. I was startled to read this explanation about the planned change:

“With this new formula, instead of considering your actual CPC, we’ll consider your maximum CPC bid, which you control. This means that your ad’s eligibility to be promoted is no longer dependent on the bids of advertisers below you. Therefore, if you have a high quality ad, you now have more control to achieve a top position by increasing your maximum CPC.”

You have more control? Oh Goodie! All you need to do is raise your maximum bid! But hang on, if you’re confused about how this is different from what you’ve already been doing, then read on.

Well, the main crux of the change will be focused on an advertiser’s maximum bid determining an ad’s eligibility to be in the TOP 2-3 positions. In other words, those ads that appear just below the search field and the ones that tend to get the most clicks. It seems that the maximum bid an advertiser must set in order to gain a position in this coveted space is going to be arbitrarily determined by Google. Hmmm.

Currently your ad’s position is not entirely dependent on your actual CPC being higher than everyone else who is bidding on your keyword but your maximum bid must be higher. Still, while maximum bid and average cost per click for a keyword do play a role in ad positioning, Google also factors quality score into the equation so that higher quality ads (essentially ads with a higher clickthrough rate) can appear in the top search results,  even though the better-positioned advertiser may be paying less per click than someone who is in a lower position.

This gives an obvious edge to well-known brands who (for example) may set their maximum bid to $10.00 but in actuality are paying just pennies a click for a top spot because their CTR is likely very high compared with other advertisers (for example, competitors who may be bidding on the brand term to try to divert visitors to their own site).

A post on Tillson Consulting’s blog titled, “New Adwords Formula: Better quality or more profit?” explains the issue very well. It’s like someone at Google saw a loophole and said, “We’ve got advertisers setting max. bids to $10.00/click and we’re only charging them .50/click for the top spot. How can we close this gap?”

Is this wrong? I don’t know. Publishers and media properties have been setting the price of top ad spots for decades, so why should Google be any different? They are charging premium prices for the premium positions. Still, it strikes me as dishonest that Google is claiming this is an improvement on their quality score formula. On the contrary, it will likely force advertisers with high quality and limited budgets out of the game completely. It’s no longer a fair playing field when only those with deep pockets get to participate.

Addendum: Okay, so maybe I’m misunderstanding the new rules here. A post on Search Engine Land by Barry Schwartz states that quality is actually going to have a larger influence on the maximum bid threshold than CPC. Barry also explains that the actual CPC shouldn’t change, even if the maximum bid is increased as long as the quality score is high. However, I think this move of focusing on maximum bids will still force the actual CPC higher as advertisers with lower quality scores attempt to keep their ads in the top spots, thereby forcing even the high-quality advertisers to pay higher a higher CPC.

Entry Filed under: E-Marketing Advice

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