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August 10, 2007

Bruce Clay’s Pay Per Click Expert Discusses Google’s AdWord Tweak

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Guest entry by Nick Guastella, Search Engine Marketing Analyst for Bruce Clay, Inc.

Remember when Coke changed its formula a while and people revolted? Well, get ready because Google is getting ready to change its top ad place formula and advertisers are sure to have an opinion. Let’s hope Google’s formula update leaves a better aftertaste than New Coke’s. [*rimshot* Sorry... - Lisa]

In its infancy, pay per click advertising was a simple case of the highest bid wins. It didn’t matter if you had a good ad, how high your click through rate was, or even if your ad took users to a page where they found what they were looking for. All powerful Pay Per Click God Decreed: He who spend the most money was awarded the highest position.

But then came Google, the new kid on the block who founded the idea of ranking ads based on a pre-defined "quality score". No longer was it a simple case of the highest bid wins, now ads were being positioned based on their value to users. With the new Quality Score model it became harder for advertisers to get those top spots. They’ve had to work at writing better ads to get the best click through, select better landing pages, and essentially, work to decipher this new black box called Quality score. One thing advertisers haven’t been able to control is the bid portion. While one advertiser may have been willing to bid more than another, Google was looking at actual CPC to determine how ads would be positioned, giving advertisers less control.

Under the new formula, in order to gain the top pay per click spot (the one that sits on top of the organic results), Google will begin looking at an advertisers maximum CPC (i.e. how much money you’re willing to shell out to Google) instead of using the actual CPC (how much you’re really paying).

I think this will be a change for the better, not because it will offer the bid transparency that I sorely miss, but because by allowing advertisers to have a little more control of how they’re ranked by looking at max bids. Obviously, ad quality will still be a big factor and Google will continue to reward quality ads with lower bid costs.

We won’t fully know how effective Google’s new AdWords tweak will be until this goes into full effect, whenever that may be. Some ads may not see any movement, while others may suddenly rise in the ranks. In either case, it’s important to remember that in the end it’s really the conversions that count. While it’s always nice to be number one, sometimes the number two or number three spot is actually more profitable. Advertisers should monitor their ad conversion rates to see what works best for them.

Note from Lisa:

I know Nick is the pay per pick click expert in the group, but I feel inclined to add my two cents here, as well.

Google’s touting that this change will help advertisers by giving them more "control" over where their ads appear. The rationale being that now ads can be "promoted" to that top position based on advertiser’s own action, not based on what their competition is bidding. If you set your max bid to $30.00, assuming your ad copy doesn’t totally suck and you can appease the quality score gods, then you have a pretty good shot at being positioned where you want to be, no? I don’t know, it just feels like Google is encouraging users to bid high in order to claim that top spot. Why don’t they just put a bounty on it and see who is willing to cough up the dough? Or wait – isn’t that what they’re sort of doing here?

Like I said, Nick is the PPC expert, I’m just the mouthy blogger.

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5 responses to “Bruce Clay’s Pay Per Click Expert Discusses Google’s AdWord Tweak”

  1. CFernandes writes:

    Seriously, It looks like Google is slowly choking the goose that lays the golden ages.

  2. Geri writes:

    When I think of how Google changes the rules it reminds me of the board game know as Risk. It seems that when I played in my college days, that every house or dorm had it own set of ever changing rules. Those rule changes always benefited the home or dorm resident!

  3. Patrick Schaber writes:

    Nick/Lisa,
    I’m anxious to see how Google responds to this at SES San Jose next week. I can’t imagine the response to this will be positive.

  4. Kate Morris writes:

    As a long time AdWords user, circa the days of Overture and being able to see the top 5 bids, I am NOT a fan of this. I liked when Google came along.
    This is going to require a lot of tweaking of bids, more hands on work, less quality ads. I get what Google is trying to do here, but truthfully, its money grubbing.
    I prefer the old system of automatic bidding. You punch in the MAX, and depending on others, your bidding is done “up to” that. You had the option of telling Google where you preferred to be, but never went over the max, but rarely were up there. I could bid $10.00 per click, and no matter what, as long as my page was relevant, I remained basically in the top three.
    Now they are setting spend to max and max only? So my safety net is gone.
    I feel like I’m back in the times of Overture, but don’t know what others are spending. And now I have to be more high touch. I have to check everyday and make sure a new competitor hasn’t come in.
    If they are doing this, I want the ability to see the top 5 bids then.
    This saddens me … highly.

  5. David S. Foreman writes:

    Actually some CPCs have fallen by as much as 30% while other click prices have risen over 200%. The net result is huge volatility based on an algorithm that is subject to an opaque auction market with hidden bids and no offers.

    A blind auction creates an atmosphere of uncertainty that will likely result in volatiles and irrational bidding with a strong upward bias.
    The New Algorithm now delivers clicks that are widely distributed. I am seeing CPC varying by over 1000% on the same day for similar keywords such as "Marriage Counseling PA" broad match for $9.45 and Marriage "Counselors in PA" exact match 83 cents Obviously there will never be anytime where a rational person will be willing to pay 10 times the price for two very similar keywords.

    We would rather rank highly on all the temporarily cheap keywords and let competitors choke on the over priced keywords. The only way to do this effectively is with software programs that constantly check for changing conditions.



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