AdWords Top Ad Placement Formula Is Set for a Facelift

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formula.bmpUpon logging into my AdWords accounts this morning, I was greeted with an alert: “Coming Soon: Improvement to the Top Ad Placement Formula.” Quickly thereafter I found the official FAQ and AdWords Blog announcement to fill in the gaps. The current formula involves Quality Score and your actual CPC. Google feels that this leaves you, the advertiser, without much control over which of your ads make it into the top positions. The new formula will still consider Quality Score, but it will instead look at maximum CPC for pricing.

How does this new formula change things? The way Google explains it is that in the current model, competitors who are below you in rank are also bidding lower then you. Thus lowering your actual CPC and limiting your ad’s chances of reaching the top positions. In the new model, Google will look at your maximum CPC. This would take your lower-bidding competitors out of the ranking equation and allow your higher quality (score) ads to elevate in the rankings on the basis of how much you’re willing to pay for each click.

The Lonely Marketer posted on this subject last night. Their first reaction was that this is another attempt by Google to ensure that “you’ll need to dish out more to hit the top spots.” While my gut tells me that this is more along the lines of an algorithmic, ad quality shift, I can’t help but agree with The Lonely Marketer on this. In the old model (actual CPC), advertisers were saving money by maxing out their position with a lower CPC. The new model gives Google license to charge you for each click at the maximum CPC under the guise of improving user quality and ad rank.

Leave me a comment and let me know what your thoughts are about Google’s intentions with this formula change!

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  • http://www.lonelymarketer.com Patrick Schaber

    Hey John,
    I’ll be curious to see how that shakes out. I was surprised to see them shift more emphasis to max CPC. Hopefully, your gut is correct and it’s more of a basic algorithmic shift.

  • http://www.theppcbook.com Jeff

    John I think we’re in for a bit of a roller coaster once this change hits the fan. I really don’t think they have a good handle on quality yet and it hurt their bottom line over the past 6 months or so. I think it’s purely a financial decision to factor max cpc.

  • http://www.zylom.com Hein van der Honing

    Hi All,

    I don’t think the new feature is explained the way it’s meant to be. Your rank in adwords will be calculated by the max cpc you,ve set, but your payment still comes from the bidding system. Therefore you don’t automatically pay the max cpc for each click. I say automatically, because it eventually will result in higher cpc’s most probably. So in my view your bid will be used to calculate ad quality and thus placement. It doesn’t mean you have to pay the lot.
    And, ofcourse it only accounts for the top-placement ads, not the ads on the side.

  • http://www.netegg.co.uk Benedict Hayes

    Hey All,

    This looks to me as another way for Google to maximise revenues by upping everyones bid prices. The minimum bid requirement ensured that all cheap traffic was a thing of the past, this max bid requirement will only increase the entire auction cost for everyone.

    Google have created a score which they define that you must hit in terms of Max CPC to obtain top spots. If you do not hit their defined Max CPC you do not get top spot. You therefore have to up bid prices to the level defined so you can hit top spot. So I ask..

    “What stops Google from taking brand related search terms for a company, which invariably are very cheap (Max CPC $0.10 for top spot) and deciding the advertiser must pay $0.25 if they wish to remain above the natural results?”

    This is a Max CPC increase of 150%, if the top 2 positions both raise their max CPCs both parties costs will surely increase by 150% through the original pricing algorithm.

    To me this is another way of milking everyone for more money. If everyone is told they cannot get top spots as they do not pay enough, everyone will up bids according to Google’s rule. If we are all forced to up bid prices to obtain our desired position the auction increases and we all pay more money to Google. The old bid calculation doesn’t need to change if everyone is upping their max bids, its simple we will all pay more money to Google.

    This makes me not a very happy AdWords user!

  • http://www.ppc-advice.com/2007/08/10/will-the-adwords-algo-change-kill-affiliates/ Garry

    I hope you’re right and the algo shift isn’t a significant burden. I’d like to stay optimistic about the news, but I can’t stop thinking how the new algo might kill the affiliate market.

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  • WR

    We are independent Sales leaders for Avon Cosmetics under the old system our bid was enough to take us up high on the right hand side and on some occasions it would spill over onto the left hand side, But now under the new google changes our add only shows at the bottom of the page and to be honnest it will never go any higher because Avon the main company will always have the finances to keep there site at the top which is of course only correct But why on earth should I and other Sals leaders now pay the same or more to be at the bottom and out of site .
    In my own experiance when I search for any information or products I go no further then the top few sites eiather on the left or the right hand side, so why would I expect people to skroll down to the bottom of a page to click my site?
    The perticular key word is the word   avon   and this is the most impotant keyword within the many keywords that we have.
    In effect Google have given Avon the company the compleate monopoly on that key word.
    I don,t suppose there is anything we can do about it apart from spend  our money on other search engines.