Posted August 8, 2007 8:32 pm by with 14 comments

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Tonight the Inside AdWords blog announced that Google is going to change the ad placement algorithm, replacing actual CPC as a factor with maximum CPC.

How does this affect advertisers? Well, by Google’s estimation, this is a GOOD thing for advertisers:

Actual CPC is determined, in part, by the bidding behavior of the advertisers below you. This means that your ad’s chance of being promoted to a top spot could be constrained by a factor you cannot influence. By considering your ad’s maximum CPC, a value you set, you will have more control over achieving top ad placement.

In addition to increasing control for advertisers, the improved formula increases the quality of our top ads for users. This is due to more high quality ads becoming eligible for top placement, thereby allowing our system to choose from a larger pool of high quality ads to show our users.

But the question remains, how MUCH will max CPC affect the ranking versus quality score? While quality score does have some impact on ranking today, most of my testing has shown that quality score has had less to do with ad ranking and more to do with how the max CPC is established. For instance, in one client’s case, by improving the quality of ad copy, our max CPC dropped from $5/click to $1/click, but the position remained relatively the same.

If indeed the quality score plays a major role in ad ranking, then this change may not affect many advertisers. BUT, if max CPC plays a major role in ad ranking (and we’ve seen CPC has done so to date), then the advertisers that lose are the small businesses, as they can be easily outbid by larger advertisers. At least quality score, if it were a major factor in ad ranking, might help level the playing field.

But what is Google’s main motivation here? To help advertisers? To serve better ads? Not in my estimation. Could this change have anything to do with the fact that Google last month announced that its Q2 earnings only saw a 58% increase over Q1. You bet it does. As a public company, Google’s been a Wall Street darling, and like a recording artist with a string of #1 hits, the pressure is on to continue to perform at peak levels. That demand will continue to cause Google to make decisions that may not always be completely beneficial to its advertisers or searchers. I guess that’s just business.

  • Janet you’re not supposed to question Google’s motives – it’s only ever for our own good. 😉

  • Someone recently reminded me that I should be thankful that Google makes all of these changes — I guess it does offer me some job security!

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  • Google’s helping advertisers? Whats next? Hopefully this will go well for advertisers and they will get higher results as well.

  • No doubt that it could help the bigger budgets over the better landing pages somewhat, but I gotta feel that quality score is more important than most may think.

    I have seen campaigns run at a very low CPC with high relevance and “near perfect” landing pages that would easily out rank much higher bidded ads.

    Should be interesting to watch.

  • Good call here Andy. Usually Google has pretty good reasoning when making a big change to any of their ad ranking formulas – this time I see a bunch of fluff that sounds more like $$ motives.

    I predict an outcry from the small business advertisers, and a scale-back on Google’s part.

  • Sorry – I meant Janet!

  • It’s just a matter of time before they start selling the #1 rank in “organic” search results to the highest bidder. Oh, well *sigh*.

    BTW: I screwed up the spam protection sum question. This is my second intent. 😀

  • I wonder how many people will look at this and take Google’s spin at face value.

    I guess we’ll have to wait and see what effect this will end up having, but at first glance it comes across as purely profit-centric on G’s part.

  • There’s a total disconnect in Google’s messaging on this change. They say that in addition to giving advertisers more control over how to get their ads in top position, it will *also* improve quality of ads in top spots by making the pool of ads that can *attain* top position larger. But if increasing that pool just comes down to people raising max CPCs, then how does that improve quality? Realistically, it’ll probably be quality neutral or even negative, at least until advertiser natural selection kicks in.

    Anyone care to venture what % of clicks go to the top ad position on Google?

  • This is the very thing Google tried to get away from and gave smb’s the ability to survive in the past. My campaigns have great quality scores and have even seen lower cpc rates for the same performance. Now I am concerned that it will take even more effort to realize a positive ROI from my Google keywords. I think there will be a quick flashpoint that will take out many advertisers who don’t want to battle over higher max bids. There is always an exception to every rule that Google makes, it will be interesting to see who can figure out those “exceptions”.

  • AdWords is a great tool for advertising but since google does everything for money it looks more and more like a big fraud.

  • Google’s helping advertisers and this will go well for advertisers and they will get higher results as well. And google getting richer because of companies not users.

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