AdWords Auction; How Keyword Bidding Works

Summary

In this video, Google’s Chief Economist explains how Google’s ad auction system works. Advertisers bid to have their ads shown in search results, but the system doesn’t solely rely on bids. Factors like expected clickthrough rate, ad relevance, landing page quality, and ad format impact are also considered to determine ad rank and cost-per-click. Google’s goal is to balance a positive experience for users with valuable ads for advertisers, ensuring the ecosystem thrives for everyone. Through a second-price auction model, advertisers pay only the minimum amount necessary to maintain their ad position.

Takeaways

• 😀 Google uses an auction system to rank ads and determine the cost per click on the search results page.
• 😀 Users want to see relevant ads, advertisers want their ads to be clicked, and Google aims to provide a good experience for both parties.
• 😀 In a traditional auction, the highest bidder wins the best position, but Google uses a second-price auction where advertisers pay the price of the second-highest bid.
• 😀 The Google ad auction is based not only on bids but also on additional factors like the expected clickthrough rate, landing page experience, and ad relevance.
• 😀 Expected clickthrough rate predicts how often an ad will be clicked, and Google uses user feedback to adjust ad rankings.
• 😀 Landing page experience is important; it should be relevant, original, transparent, and user-friendly to score highly.
• 😀 Ad relevance is determined by how well the ad's content matches the user's search query, preventing irrelevant ads from appearing.
• 😀 Google also considers the impact of ad formats (like phone numbers or site links) in the ad ranking process, as these enhancements make ads more appealing.
• 😀 Ad rank is a combined score from bids, expected clickthrough rate, landing page experience, ad relevance, and format impact.
• 😀 Ads with higher ad ranks, even if their bids are lower, can appear higher in the search results, while low ad ranks with high bids may not show at all.
• 😀 Advertisers pay the minimum amount required to maintain their ad position, based on the ad rank of the next advertiser below them.
• 😀 Improving ad quality, such as landing page experience or adding ad formats, can lower the cost per click and improve ad ranking in the auction.
• 😀 Google's ad ranking and pricing system helps create a better user experience by showing more relevant ads, which also benefits advertisers and Google.

Q & A

How does Google rank ads in search results?

Google ranks ads using an auction system, considering factors like bid amounts, expected click-through rates, landing page experience, ad relevance, and the impact of any ad formats. The goal is to ensure that users see the most relevant ads, which results in higher user engagement and value for advertisers.

What is a second-price auction, and how does it work in Google's system?

A second-price auction is when the highest bidder doesn't pay their full bid but rather the amount of the second-highest bid. This system encourages advertisers to bid their true maximum amount, while only paying enough to beat the next competitor.

What are the key factors that influence ad ranking in Google’s auction?

The key factors include bid amount, expected click-through rate (CTR), landing page experience, ad relevance, and the expected impact of any ad formats. These factors together determine an ad’s 'ad rank,' which influences both its position in the search results and its cost per click.

What role does expected click-through rate (CTR) play in ad ranking?

CTR is a prediction of how likely an ad is to be clicked when shown. Google uses past user behavior to assess this and adjust rankings. Higher CTRs generally result in better ad positions, as it indicates the ad is likely more relevant to users.

How does the landing page experience affect ad ranking?

The landing page experience is important because an ad’s relevance depends on how helpful the landing page is for users. A high-quality landing page that is relevant, easy to navigate, and transparent about business practices will contribute positively to the ad’s rank.

Why is ad relevance important in Google’s ad auction system?

Ad relevance ensures that the content of the ad matches the user’s search query. Google assesses the language used in the ad to determine how well it aligns with the search intent. This ensures that only relevant ads are displayed and prevents advertisers from 'gaming' the system.

What are ad formats, and how do they affect the ad auction?

Ad formats are additional features like phone numbers, site links, or domain information that appear with ads. These enhancements give users more information and increase the likelihood of a click. Ads with more impactful formats can rank higher even if their bid is lower than others.

How is the cost-per-click (CPC) determined in Google’s ad auction?

The CPC is determined by the minimum amount needed to outrank the next competitor. If an advertiser is in position one, they pay just enough to beat the ad rank of the second-highest position, and this applies to all subsequent positions.

How can an advertiser lower their cost-per-click?

Advertisers can lower their CPC by improving the quality of their ads, enhancing landing page experiences, and using impactful ad formats. This can lead to a higher ad rank, which may result in a lower CPC even if the bid amount stays the same.

How does improving ad quality affect ad position and CPC?

Improving ad quality, such as by enhancing the landing page experience or adding relevant formats, can lead to a higher ad rank. A higher ad rank can result in better ad positions and a lower CPC, as the advertiser may not need to bid as high to maintain their position.