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I am trying to determine whether their new Ad Placement Formula is another attempt to increase actual cpc's/increase revenue, or improve ad quality of their results?
Your actual CPC will continue to be determined by the auction, but subject to a minimum price for top spots.
I think that says it all. This is probably a good thing in all but I'm sure it will mean more revenue for Google.
Hopefully we'll have the option of knowing what the minimum required bid is for the top positions. I know for me personally it has been frustrating past not being able to get ads into the top spot only to find out it had more to do with the people bidding below me than it had to do with my ad.
This may be coming from the fact that in some cases, in order to achieve the top position, you have to bid very high, even though you are not really willing to pay that much. Now, the folks at Google may be working on finding a formula that will stop this and put it back to more realistic scene where your economic calculation will play a big role in determining your max bid.
Again, this may be affecting some, not all situations, if we are right in the upper statement.
I think this is good in that it clarifies for a lot of people how Google was determining what ads got into those top spots above the SERPs.
However, the statement about creating a minimum bid price required to get into those top spots clearly indicates that Google is finding yet another way to pump up its revenue. Man, do they have a lot of power right now.
In the current top ad placement formula, we consider your Quality Score and your actual CPC, which is determined in part by the bids of advertisers below you. Even if you have a high quality ad, if advertisers below you are not bidding very much, your actual CPC may not be high enough to qualify your ad to appear in a top position.
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.
Your actual CPC will continue to be determined by the auction, but subject to a minimum price for top spots. The minimum price is based on the quality of your ad and is the minimum amount required for your ad to achieve top placement above Google search results. As always, the higher your ad's quality, the less you will pay. And you will never be charged more than your maximum CPC bid.
formula for top ad placement [adwords.google.com]
formula for top ad placement
Also, more information on this topic in yesterday's Inside AdWords blog post.
WebmasterWorld Terms of Service prevent me from posting a link to the blog, but it's pretty easy to find using your favorite Search Engine (whichever one that happens be.) ;)
<edit> fixed formatting </edit>
[edited by: AdWordsAdvisor at 6:16 pm (utc) on Aug. 9, 2007]
the question is who else will gain from this and who's going to lose.
i think the other winners from this move will be the agencies, who will have now another guideline/option to increase client spend AND proof the client that they got him FIRST POSITION, MAXIMUM EXPOSURE, max traffic etc.
It will also fit branding/marketing advertisers needs, that are looking for eyeballs, not conversions.
and who loses?
this move will bring advertisers that are today on top of the page, in the low-mid traffic search terms.they were used to buy excellent traffic in an a certain average CPC, and now will have to chose- increase CPC, or lose part of the traffic to others. both options will take their net profit down.
Your actual CPC will continue to be determined by the auction, but subject to a minimum price for top spots.
To be in a top spot (above the results) you need quality and price. Since price is determined by auction, you might not get enough boost from price to break through the top ad threshold. Sounds like in the future, if you bid is high enough to push you through that threshold, then Google will put you in that top spot.
However, the way I read the above sentence, you will be charged the lower of the price that helps you break through the threshold. That would be your bid or a the auction price (whatever price gives you enough boost for that top spot).
Advertisers could be in for a surprise if they put in VERY high bids in the hopes of staying ahead of bids.
[edited by: jam2005 at 9:41 pm (utc) on Aug. 9, 2007]
which means no one will ever be able to pay their way to the top.
At the same time they say:
By considering your ad’s maximum CPC, a value you set, you will have more control over achieving top ad placement.
Sounds like totally contradicting statements to me!
So, money alone won't get you to the top of the page, but now it will be easier for advertisers that do meet those quality standards to get placement on the top of the page.
It sounds like this will only affect advertisers who are already at the top of the set of ads appearing to the right of the non-paid SERPs, but their ads are not placed above the non-paid SERPs.
There is a lot of research, including that which I've done on my own campaigns for years, that shows lower placements produce a better ROI so this is great news for me. It means the big guys can use the top slots for their expensive branding purposes and others can pay the stupid tax, meanwhile those who test ROI can carry on running successful marketing campaigns by taking positions 3-8.
Excellent, keep it up.
In my opinion, there should be a completely separate bidding auction for the top placement above search results.
Mainly due to that spot having a completely different ROI dynamics from the ads on the right side of search results.
Let's leave it for now as it is not affecting such cases at all or as much as the top placed ads.
Discussions are great when they produce something what we can use for whatever. Therefore, let’s try to figure out why this is happening. What is the background of it?
From Inside AdWords:
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.
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.
Question: How will this affect the price of the click at given moment?
For example, if I bid $5 and pay $1 for top position, how much I will be paying when that change kicks in?
It says that a “bidder” from below will not be influencing your CPC as much as in the past, or at all. Will this save top placed ads from “bid trapping” that is taking place in some cases?
If this change is aiming to figure the realistic price per click for top ad placement which would be determined (the price per click) by your own calculation how high you can bid – that will be a great improvement for real marketers that are tracking their numbers and doing right calculations.
This may also influence gaps that on certain queries are very big. You may have someone bidding $2 and be on second or third position while paying $0.75 per click. … and they simply don’t care about the fact they are influencing those above them. I am not saying they should, but this behaviour may be something to be scheduled to disappear once Google’s changes get into effect.
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.
This part I don’t truly understand. Making changes mostly on how our maximum CPC influences placement (or cost which has not really been referred to at all), how will that determine which ad and landing page/site is better?
Or, does this mean: advertising cost increase in overall or more freedom for those that are running good sites, or both?
One thing Google AdWords really does well – it tells us everything and we all talk about it day and night, still without knowing anything. It all boils down to that as long as we are on the positive side, we keep running it.
… but, would we have any more control if we run a corner store? Probably not… we would just hope for one more prospect to come in and buy something.
This is exactly what will happen. The guys on the top will not change anything and stay where they are. However, their CPC will increase because all the poor ads on the side will want to be on the top too. So, regardless of their quality, they will increase their bids and cause an increase in the cost for the top guys. The poor ads will not move up because their ad is still to low in quality, but the cpc of the normal top advertisers will. Search experience remains the same, cost goes up. Simple as that.
Additionally, the top ad placement formula uses your CPC bid instead of your actual CPC to determine your ad's eligibility to appear in top spots. 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 through your CPC bid.
Ok, they are now going to use the MAX CPC to help determine whether to bump an ad to the top.
This is how I am understanding the changes.
1. Quality score is still the major factor in determining if you get to the top. If your QS stinks it doesn't matter what your Max CPC. If your ad quality didn't make the cut you don't get "The Bump".
2. If your QS is good enough to be considered for top placement, they then look at your max cpc.
3. If your max cpc meets or exceeds the minimum CPC requirement to be at the top you will be bumped.
Here's where is gets hazy for me.
? 4. After getting bumped to the top your actual CPC will not necessarily equal your Max CPC but will not necessaruly be what your previous CPC was. Rather your actual CPC will now most likely be at least the minimum CPC to be at the top but less than your Max CPC?
They say your Max CPC will be used so an ad is no longer dependedent on your competitors CPC's to get to the top.
After you get to the top is your actual CPC once again determined by other advertisers? Or will we now be charged a "Bump Tax" (the minimum CPC you must pay to be at the top if it is higher than your current CPC but probably less then your max CPC.)
Does this make sense? :-)
Regardless, it is a play to make Google more money and cost us more...to be at the top. Which as it's been pointed out is not necessarily the best spot for maximum ROI.
Every so often I'm looking at one of my sites, and I say to myself "Hmmmm...if I put another ad over here, I could probably make a little bit more money," however I always ask myself one more question. "How is this going to affect user experience on my site?" Since Google is saying that the same "stringent" quality standards apply to the new ranking algorithm I don't see this as having much of an impact at all on user experience, instead I see it as having a real impact on high paying advertisers that will now have a bit more control over their top position by raising their bids. Kudos Google.
I'm also in the camp that has proven over years that top position is not always the best position for profit margins, especially if you can visually tell that the 2 competitors bidding above you have written their ads far less effective than you. In that scenario I get an equal or greater CTR then my competitor in #1 position, all for the price of position #3
The original change was to ensure that keywords of poor quality or with low CPCs don't make it to the top spots, so the only way to get there was to have a good quality score plus a mid to high CPC.
They then realized that in some cases an advertiser with a good quality score won't be placed up there under the current formula since that advertiser may have a low CPC due to any or all of - that advertiser's high quality score, the other advertiser's low quality scores, or the other advertiser's low bid.
So they changed it. The solution: consider CPC bid, but still require a minimum actual CPC to stay up there.
Basically, the Adwords Discounter is no longer in effect for all positions.