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Friday, August 10, 2007

Getting the Top Spot - Google AdWords

Earlier this week Google announced they are changing the way ads are promoted to the top spot above the search results (not the top spot on the right of the results). Here's a snippet of the announcement:

"Quality Score is the greatest determining factor in top ad placement, which means no one will ever be able to pay their way to the top. We have, however, been working on an improvement to the top ad placement formula that will soon offer advertisers more control over achieving top placement while increasing the quality of our ad results for users.

The key change to the formula will be how we consider price. Today’s formula considers an ad’s Quality Score and actual cost-per-click (CPC). The improved formula will still heavily weight Quality Score, but instead of actual CPC, it will consider an ad’s maximum CPC. "

Basically what that is saying is that instead of using your actual CPC, they will now use whatever you have entered as a max CPC. The old model for the top spot(s) looked like this: Ad Rank = Actual CPC X Quality Score. The new model is Ad Rank = Max CPC bid X Quality Score. It was explained in the AdWords FAQ/help as follows:

"For the top positions above Google search results, we use a slightly different formula. First, only ads that exceed a certain Quality Score threshold may appear in these positions. Second, for ads that do surpass this Quality Score threshold, we use the actual CPC rather than the maximum CPC when determining their ranking in the top spots. This ensures that Quality Score plays an even more important role in determining the ads that show above the search results."

So who wins here (besides G' of course)? I say it's the advertisers with the largest budget - theoretical or actual.

For example let's say I sell cars. I have a small dealership and I compete with a number of larger local car dealers in the paid search space. I've been holding the top spot for years. I have great ads that are well received by users and my site provides a phenomenal user experience. I've had my max bid set at $3.00 CPC and actual has been coming in around $1.80 for the past 12 months. All my competitors, despite their larger advertising budgets, have always appeared below my ads in the search space. They have max bids that are 10X mine - they can afford to pay for some tire kickers - I can't.

Now when I check my ad position after this update who do you think will hold the top spot? My "quality" has always surpassed my competitor but now they are getting credit for a $30 max bid even though their actual bid probably comes in at around the same CPC as mine. Is having a max bid that's 10X my max bid going to push them above me? While it's just speculation at this point I would say it will, and I think this will be proved out in the coming weeks.

As a small advertiser I suppose I could just up my max bid to $50 knowing that at least for now, I'll still pay a much lower least until my large bank rolled competitor ups their max bid to $75. At some point the small advertiser will be forced to accept positions 2 - 10...the tops spot will indeed be for sale, despite what's posted here. Why would I say that?

The only real variable here is the Max CPC. Everything else is an even playing field. Ads, landing pages, keyword selection, etc can all be built to the highest standards by a guy in his basement just as easily as they can be by a large team of paid search pros. So what's the real variable? What separates the little guy from the big players?


The big guys will always be able to significantly out bid the little guy. It's not even so much what they actually pay as what they are willing to pay. The guy in his basement can build a perfect landing page, get all the right keywords and write perfect ads and he'll still have to settle for positions other than #1 if big money moves into the space.

I don't fault Google for this change....they are a public company and have obligations to their shareholders. Putting the top spot up for sale should have a nice impact on their bottom line.

The bright side for the "little guy" in all this is the fact that most who have tested have seen that the top AdWords spot is rarely the best converting position. Combine lower conversion rates (top spot gets tons of curiosity clicks) with an ever increasing CPC and spots 2 - 10 just became a lot more appealing.

Some related reading:

AdWords Help Center - Top Ad Position Formula Change

Google AdWords "Promotion Algorithm" Will Change @ SER

Want Top Ad Position on Google? The Rules are About to Change @ SEL

AdWords Top Placement Formula Changing @ The Lonely Marketer

AdWords Top Placement Formula is Set for a Face lift @ PPC Hero

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At 3:01 PM, Blogger Max said...

I don't see how this will make the top ad results more relevant.

If the top results keep losing relevance, then people will click less.

I can't find any long-term benefits for this... not for google and not for users either.

At 3:54 PM, Blogger Jeremy Mayes said...

Hi Max,

"I don't see how this will make the top ad results more relevant."

I would agree that it won't make the top spot(s) more relevant...but I really don't see it hurting relevance either. I doubt people will pay big $$$ to hold a top spot that's not related to what people are searching for...altough some advertisers never cease to amaze me.

Basically, it seems to me this is a way for larger advertisers to lock up the top spot if they want to throw enough money behind their bid.

Will be interesting as this rolls out.

At 5:57 PM, Anonymous ms danielle said...

it's funny i had the same exact hunch as you did when i first heard that they would be changing the formula. i thought, Isn't the most relevant ad already on the top? What's the difference going to i didn't understand how this gives the advertiser "more control." but i tried to dissuade my negative thinking... i don't think it's going to make that huge of an impact because i agree that the lower spots can perform just as well, and an ad in spot 3 pretty much gets the same number of eyeballs as spot 1.

At 12:17 AM, Anonymous charleston said...

Seems short-sighted and somewhat contradictory to what they've (said) they're doing to date.

Top spot usually sucks for most of my clients anyway. Too many spaz clickers.

At 10:48 AM, Blogger Jeremy Mayes said...

"Top spot usually sucks for most of my clients anyway"

I see the same thing.


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