During the past two weeks, we took a look at Google’s role as a Banker of information peddling Gmail and photo storage, and then as a Babysitter shepherding and editing news comments. Yet in this final edition of this series, we’ll see a more familiar face of Google. We’ll meet the Broker of the dynamic AdWords market — where the rules change constantly, just as they notably did last week when Google rewrote some of its rules for advertisers.
Outside of the trade publications, the media largely avoided covering Google’s most significant announcement this month in favor of the lesser updates. Google’s selling storage and then allowing comments on Google News were fun fodder for journalists. Yet what about Google’s change to its AdWords algorithm, which could affect millions of advertisers as well as Google’s profit margins?
Google used to rank ads based on their Quality Score (which includes ads’ click-through rates, historical performance, landing page quality, and other factors) and the actual cost-per-click (CPC) that the advertiser paid. While the exact algorithm isn’t made public, various sources from inside and outside Google have hinted that Google has weighed the Quality Score and CPC roughly equally.
Last week, Google changed the rules by factoring in an advertiser’s maximum CPC rather than the actual CPC — in other words, the most the advertiser would be willing to pay rather than what it actually was paying. Much of Google’s focus was using this new formula to determine which ads would appear atop natural search results, as opposed to the righthand side, and the idea is that only the best ads land that coveted top placement. Or to use a baseball analogy, it’s like Google’s own farm team system, where the best performers have a shot at The Show and can just as easily get called down to the minors if they don’t live up to the scouting report.
Google provided two reasons for the change on its AdWords blog. One is that advertisers will have more control over their maximum CPC because “actual CPC is determined, in part, by the bidding behavior of the advertisers below you… a factor you cannot influence.” Yet advertisers still don’t have control over others’ maximum CPCs, so they’re still burdened by external factors. The only way around this is for Google to completely open up the bidding system with complete transparency so that while advertisers wouldn’t have control over others’ bidding strategies, they would have all the information they’d need to plan their own campaigns.
The other explanation, which feels very Googly (in a good way) on the surface, is that users benefit “due to more high quality ads becoming eligible for top placement, thereby allowing [Google’s] system to choose from a larger pool of high quality ads” Yet little actually changes for the users. The Quality Score was a major factor before and it still will be going forward, and the maximum CPC is separate from the Quality Score.
One remote benefit could be that large marketers who can justify the importance of branding and other factors not directly tied to online conversions will raise maximum CPCs and gain more of an advantage, and consumers’ trust in the name brands will increase those ads’ click-through rates. It’s a tenuous line of reasoning on many levels, and the law of equal and opposite reactions could just as easily take hold here. If advertisers felt that their returns didn’t merit the cost of higher maximum CPC bidding, some could lower their maximum CPCs so they wouldn’t be eligible for the top position, leaving fewer high quality ads in the running. I’m not expecting that to happen, but it’s a feasible scenario, and one you won’t read on Google’s blog.
Another thing the company doesn’t discuss on its blog is how the AdWords changes will benefit Google. The goal of Google, and of any search engine, is to increase its revenue per search. By offering one more catalyst for advertisers to compete for top billing, Google should prove to be the biggest beneficiary.
That doesn’t make Google evil. Heck, Billy Joel even writes in the song from which this series’ title was taken, “You may never understand how The Stranger is inspired, but he isn’t always evil, and he is not always wrong.” In this case, though, we do have some inkling of Google’s inspiration — a source that’s no stranger to Google.