The Clickable Search Engine Marketing Blog

A few days ago, Google AdWords made two major modifications to the rules that determine which ads appear in which locations on the page.  While AdWords quietly makes minor tweaks and changes all the time, these major change were announced on the official AdWords blog, and are likely to have noticeable impacts on almost all Google advertisers.

Two different things have changed, both of which are intended to increase the click-through rates that ads receive (versus organic search results on the same pages).

1. Click-though rates now normalized by position for calculating quality score.

Click-through rate (CTR) is the primary factor involved in calculating "Quality Score", which, along with bids, determines where ads appear on the search results page (higher Quality Score and higher bids result in higher positions).

However, regardless of an ad's actual quality (read, "inherent clickability"), ads that appear higher on the page get higher click-through rates, because they are in a more salient location. This meant that, previously, advertisers could artificially boost their quality scores by bidding very high and getting their ads into position #1, which would cause more users to notice their ads, and thus result in higher CTRs. This situation unfairly biased Quality Score to reflect the bid rather than the "quality". Statistically speaking, Quality Score and bid were not independent factors, even though the positioning algorithm was designed under the assumption that they were.

Under the new Quality Score rules, CTR is first normalized by position, in order to account for the fact that higher positions get higher CTRs.  So now, ads in lower positions get more credit for the same CTR, and ads in higher positions get less credit.  For example, getting a 3% CTR in position #1 (pretty typical) is now not worth as much in terms of Quality Score as getting a 3% CTR in position #7 (impressively high).

While more accurately determining the optimal ad placements will also help Google increase their eCPM (or the effective average amount of money they will make every time someone performs a search) the change will certainly help the little guy, by more appropriately giving low-bid advertisers credit for creating high-quality ads.

2. Quality will be a more important factor in determining which ads may appear above the search results.

On search results pages with especially high-value ads (high bids and/or high CTR), ads will appear in a yellow area above the search results.  Previously, ads were assigned to this prominent spot by the same formula that determined rank within the page (Quality Score X bid).  In the past, if the top ranking ad for a page did not qualify to appear above the search results, then Google would not show any ads in that space. Now, if the top ranking ad doesn't have high enough quality, but a lower-ranking ad does, then that lower-ranking ad will still be considered. As Google put it in their announcement of this update, "we'll allow an ad that meets the quality threshold to appear above the search results even if it has to jump over other ads to do so."

This modification goes a step beyond the modifications in change number 1 above, actually giving a bias to Quality Score rather than bid, at least in the case of above-the-search-results listings.  Like change number 1, this change also favors the little guy, by making it easier for ads with lower bids to get into those coveted high-profile spots.

Who will be affected?

There are clear winners and losers here. These changes favor:

• Low-bid advertisers over high-bid advertisers (since it's now easier for to low bids to get you into top spots)
• Carefully-written, specific ad copy over vague, haphazard, generic ad copy (since better ads get higher click-through)
• Paid search advertising over organic SEO (since these changes will likely mean that more searches culminate in clicks on ads, and correspondingly fewer searches culminate in clicks on organic results)

What can I do to take advantage of these changes?

That's easy: Write good, relevant, high quality ads.

The mathematics behind these changes is complicated, but the significance to your business and Google's is simple. They want higher-quality ads that are more appealing to users and are more likely to get clicked on.  If you are a small-budget advertiser, you can take advantage of these changes by applying your effort, creativity, and skill to creating ads that Google users will want to click on.  With these changes, Google now values high clickability more than they value the promise of high-CPC payouts.  Whether you're a small individual advertiser or a large corporate agency, if you scratch Google's back by producing ads that get clicks and generate revenue, they'll scratch your back by giving you a boost over your competition.

Ehren, Clickable SEM Guru
 
Note: Clickable employees volunteer several hours a week to helping other search marketers succeed. "Clickable Gurus" participate in numerous online search communities to provide straightforward answers to numerous questions, and, each week, one of the gurus posts a search marketing tip to the Clickable Blog.

Well written and easy to understand, even for a begginer like myself.

Thanks!

J

Thanks for writing about this. I didn't even know about the changes, but I'm very excited about them!

When you select keywords for your search marketing campaigns, you’re trying to identify customers

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