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Thursday, August 16, 2007

You don't have to be in premium position to get customers...

...but it helps!

That's the t-shirt many paid search auction-grapplers have been mentally wearing for years.

In a few weeks, Google will be going live with a slightly altered version of the AdWords auction. Group Business Manager for Ads Quality, Nick Fox, was kind enough to go into considerable detail outlining the change, which as usual has been misinterpreted somewhat here in the ventosphere. The most common dismissal of any change Google has made to AdWords is "another cash grab by Google"... which I guess looks like a clever dig in pixel form, but I think the changes are definitely more interesting than that implies. Many of those comments tend to emanate from sources who still think all clicks should be free, so take them for what they're worth.

1. The Simple Explanation... Past vs. Present

a.
OK, so the explanation isn't that simple if you've been doing this for awhile but not paying much attention, because Google has changed the way they sell the top-position "premium" ad slots several times in the past few years. Several years ago, the first major change occurred when Google started, then stopped, selling those ad positions completely separately on a costly high-CPM basis, using a dedicated sales team, 6-month insertion orders, and the whole nine yards. That was convoluted to administer -- and more importantly, divorced that type of ad buy from Google's traditional AdWords formula that focused on ad relevance and quality -- so they discontinued the practice. The top slots more or less joined the regular auction, but they remained distinct in look and feel, and were great to achieve due to high CTR's, high volume, and sometimes, higher conversion rates.

b. However, Google then began to experiment with how many ads it would show in those positions, and by and large, placed a higher threshold of quality [prior to August 2005, CTR (click-through rate) was the only measure of quality] and CPC (cost-per-click) before it would elevate an ad to the premium area. The exact thresholds were never publicized, but typically, ads with actual CPC's below .75 had trouble making the grade for premium positioning. Ads with CTR's below the averages for the keyword or industry sector had trouble making the premium spots too. I'm guessing Google tweaked the formula several times.

As Nick Fox told me today, because (1) "these ads get more attention from users," and (2) "push organic results lower on the page," to say nothing of (3) "being particularly valuable for many advertisers," it's important for Google to find the right balance here. Above all, the user response to the ads is paramount. Users must not become turned off by the overall perception of quality in their day-to-day use of the search engine.

So until now, the function that determined whether an ad would show in a premium position or be placed in the right-hand margin was weighted heavily towards quality score, but also included actual cost-per-click. That made it different from the rest of the auction, which went on the basis of quality score and max bid. Max bid can often be much higher than your actual CPC because of the discounter built into the pricing method.

c. Now, there will be a small change to the formula. The downside of the "actual CPC" part of this was that it stopped certain advertisers from getting in premium slot due to a lack of what Nick Fox called "auction pressure." Other advertisers simply might not have been present or bidding high enough to push the actual CPC up enough for the leading advertisers to qualify for premium spots. Worse, I'm guessing that this might mean that slightly lower-quality ads could creep into premium positions, because they *did* pay more on an actual basis. They wouldn't be *poor* quality ads, but they might not be the highest quality. This actually reveals a flaw in the previous formula because it unwittingly relaxed quality standards slightly in the area where it should have been heightened.

My interpretation here is that advertiser control and overall user satisfaction rise with this change, but yes, it does seem that some advertisers might experience price increases.

2. Unforeseen complexity.

Unpredictable effects might occur to some advertisers who find they suddenly get promoted to premium position, or who have been bidding very high and changes in the auction dynamic cause other advertisers' positions in the auction to change.

Will you pay more in those cases? Probably, if your actual CPC has in the past been coming in below what the new minimum price for premium placement is set at.

What, did I just say "new minimum price for premium placement?" I don't want to put words in anyone's mouth. There is no set reserve price that Google is implementing here, but rather, a dynamic minimum that is a little bid difficult to grasp at this stage.

I guess the throbbing feeling I have in my brain about now comes from the fact that by adding this wrinkle, Google appears to be adding a second "minimum bid" - I'd liken it to a larger rung partway down the auction ladder. If you qualify to be in the premium slots (let's call this the treehouse), then you can stay up there, but you'll potentially pay more. The rope ladder down to the ground has the usual auction dynamic, but if you fall below that familiar minimum bid, the bottom rung on the rope ladder breaks and you fall into a big pile of leaves on the ground (out of the auction entirely). Potentially, your best friend's dog, Scrappy, licks your face as consolation, while you muster the courage to "improve quality or bid higher."

The minimum bid to be on the rope ladder (active in the auction at all) is *published* right next to the keywords in your AdWords account. But it doesn't look like your price of admission to the treehouse (the premium positions) is going to be published. One minimum bid, disclosed; the other, not. And a real dilemma for Google as to how they could possibly publish that given the limitations of the AdWords user interface as complicated as it now is.

So while the change may be minor in practice, advertisers are counseled to watch their bids, particularly if they've mucked about with high maximum CPC's (aka bids) in low actual CPC zones. You might begin paying more than that low level you've been accustomed to, in those cases. You should always be prepared to pay the full amount of the max bids you set, so it's never a good idea to bid wildly high, counting on a lack of auction pressure to make up for your laziness in bid management.

Let's ditch the passive voice, just to be clear. I counsel you to watch your bids!

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Posted by Andrew Goodman




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