The AdWords auction is not a purely economic auction. If it were the high bidder would always win.
But in the AdWords auction the high bidder can wind up in 1st, 3rd, or 5th position – or even wind up out of the game with nothing.
Imagine a new kind of eBay auction; one where you could browse for a searcher or search query you wanted to have see your ad, and enter a bid. The auction would go on for a while – maybe a few hours – and you would even be notified when you were or were not the high bidder.
Like many eBay auctions there would be some jockying for position as the end nears. First you’re you’re the high bidder, then you aren’t, and then you are again.
Now pretend that as time expires, it turns out you were in fact the high bidder. But just before the display updates to say ‘You’ve Won’, a funny thing happens: eBay applies a secret multiplier to everyone’s bid. Some bids are multipled by 3, while others are multiplied by .3. The ranking order of the results is completely transformed.
You – the ‘high bidder’ – winds up in 3rd place. Someone with a rather low bid vaults to the top and they’re declared the winner. They pay only a fraction of what you had offered and yet win the auction and claim the prize.
If you were bidding in these kinds of ebay auctions, once you understood the game, would you focus purely on your bid?
Wouldn’t you want to learn all you could about the secret multipier and try in influence that? Wouldn’t you feel a little silly just bidding in earnest as if there were a direct relationship between your bid and the result?
Ignoring The Secret Number
Yet make no mistake, this is how the AdWords auction works. Everyone bids in the same currency (effectively) but that bid is then transformed by a secret number before the winner (or rankings in this case) is declared.
The secret number, in this case, is quality score.
Your bid is not multiplied by quality score, but quality score transforms the results of your bid none-the-less.
To see the actual way bids are calculated, read Secret Truth #10 in the book.
(Note: the download sign-up will have some downtime today, 3/27, sorry)
Bids impact, but don’t drive, CPC. Repeat that to yourself a few times. “My bid does not drive my CPC – My bid is only one factor that impacts my CPC.”
My View of Bidding
I’ll admit it. I kinda have a chip on my shoulder about bidding.
I’m not a big fan of over-simplification to begin with (hence the whole ‘high-resolution’ thing) and with bidding there are only two modes – over-simplified and mind-bendingly complicated. Guess which one most everyone chooses?
As described earlier, the idea of bidding-for-position is obsolete and inaccurate. And now we see that bidding does not directly define CPC.
Bids indicate the maximum amount you want to pay for any single click. But they’re only one factor in the determination of your ad position, and beyond that they’re not a factor in the calculation of CPC.
None of this is to say that bids don’t matter. They matter a lot. They have an impact – changing them has an impact and not changing them has an impact.
Plus, bids are concrete. Bids are accessible. Bids are easy to understand, even if they summarize or stand for something that on further inspection isn’t entirely true.
What Bids Do and Don’t Do
There are four key steps in the AdWords Auction. Let’s examine the role your bid plays in each:
- When someone executes a search, quality score is calculated for the keywords in your account which may be eligible for the auction. Bid plays no role in the calculation.
- AdWords determines whether or not your ad (via your keyword) is eligible to be in the auction. Bids are a direct factor, because there is (despite the retirement last year of the Minimum Bid metric) a minimum bid to trigger display for any particular query. This is by no means the only eligibility requirement.
- AdWords calculates Ad Rank to determine your position in the results. Bid is direct factor, as discussed in Secret Truth #9.
- CPC is calculated to define how much you’ll pay if the ad is clicked. Bid isn’t involved beyond via the role it played in the deciding your Ad Rank. Really this is a Quality Score driven issue.
Putting Bids In Their Place
The punchline is that bid management and quality score management should, at worst, get equal attention in the process of managing paid search.
A year or two ago, almost nobody was talking about let alone working on quality score. Now the topic gets a lot of attention, but the confusion remains thick and the specific action steps are often not well defined. Quality score reporting has improved dramatically, but there still is a lot of information that we’re missing. We’re making progress, but there remains a long way to go.
Earlier I asked you to stop thinking about position purely as a result of bidding. Here I’m suggesting that you also stop thinking about cost-per-click as a direct bid result as well. These shifts will help you to have reasonable expectations for bidding, and to remember to consider and pay appropriate attention to qualty score in order achieve your position and cost related goals.
What Do You Think?
This blog post is part of a series extending and amplifying the ideas in our free ebook ’21 Secret Truths of High-Resolution PPC’.
What they’re saying: “Everything you know about AdWords is the basics Google wanted you to know. Just enough to get you hooked. But what if there was fundamental secrets that they neglected to share? Would you want to know them? Now you can! 21 Secrets Truths is what you must read, no, act on, before your competitors do.”
- Bryan Eisenberg Conversion Expert and New York Times Best-Selling Author ’.