ClickEquations Blog

The fall-out from Google’s Hal Varian Quality Score Video continues.

One early impact was finally understanding exactly how quality score impacts your cost-per-click.

A more interesting idea to get your head around: Your bid is not used in the calculation of your cost-per-click.

Isn’t that amazing?

How CPC is determined
Using the information from the Google video, and some other Google-documented facts, let’s look at the exact sequence of steps that determine the position and cost-per-click of your ad.

1. Joe Smith types his search query into Google and clicks ‘Search’
2. Google and (using their ‘infinite wisdom’ machine) decide which advertisers have keywords and match types and budgets and geo-targeted day-parts that make their ads eligible to be shown.
3. Google calculates, in real-time, the Quality Score for each eligible keyword.
4. Google multiplies Quality Score x MaxCPC for each eligible keyword to determine the Ad Rank of each keyword.
5. The eligible keywords are sorted by Ad-Rank, highest to lowest.
6. Starting from the top of the list, the CPC for each keyword is calculated by taking the Ad Rank of KW below it, and dividing it by the KW’s QS
   .
   So if my Ad Rank is 50 and my QS=7, and the following keyword’s Ad Rank is 45, my CPC = 45/7 = $6.42.

Bid Is Not A Direct Factor
Notice in Step 6: The bid was not a direct factor in the computation of the cost-per-click. It has a major influence, but it’s indirect, by determining your Ad Rank, which determines which keyword your rank above and that keywords rank is used to determine your CPC (by dividing by your quality score).

The ramification of this, beyond being a cool way to trip up friends at PPC cocktail parties, is that we have to rethink the idea of changing bids to change our costs or positions. There is an effect and relationship, but it is far less direct that we typically think.

Additional Steps
Just to finalize, there are some steps after the above sequence before the entire process is complete.

1. For the last keyword in the list, Google uses some minimum required bid to determine the price.
2. There is a minimum CPC below which ads will not appear – so not every keyword on the original list is displayed. Google decides this CPC, and perhaps how many ads they want to appear. The point is that some (or many) eligible keyword’s ads are not shown.
3. After the rank and price is set, Google checks the MaxCPC of each KW against the MinBid required for a TOP position (ads that appear over the organic listings rather than on the right) and may move some ads to the TOP. Note that this decision is based on MaxCPC not CPC, and an ad in Position 4 may jump over an ad in Position 3 to get to the top if it had a higher MaxCPC.

PS: I’m hard at work on my way-behind-schedule ebook ‘High Resolution PPC’. If you like this kind of how-it-really-works thinking about paid search, I think you’ll enjoy the book. Sign up now and we’ll alert you as soon as I can finish and you can download.

Because you can bid less and still have your ads shown on the first page.

In my experience it isn’t unusual to see the following:

A Portion of The Keyword Report from ClickEquations

On the top line we see a keyword with a FPBE of $1.93, a MaxCPC of $1.50, and an AvePos of 2.82 (clearly on the first page). And we see a healthy impression count. It seems like something doesn’t add up.

I can only surmise (I have no direct information from Google on this) that this proves it really is an estimate. The actual bid required to be on the first page varies on a query-by-query basis. (Our post on the Quality Score discount or penalty.)

This makes sense given what we now know about how Ad Rank is calculated and the fact this is done in real-time for every query. So for each search Google:

1. Calculates the Quality Score of each bidder, then
2. Calculates their Ad Rank to determine position, then
3. Determines price based on the Ad-Rank and Quality Score, then
4. Figures out if any ads are eligible to get a Top Position, then sometimes
5. Decides how many ads they want to show

So there are two chances for your ad to not appear on the first page:

1. Your Ad Rank is too low to earn a spot on the first page.
   This (again) is Bid x Quality Score so you have to variables to work on to fix this.
2. Google limits the number of ads they display, even though there are more bidders.

What This Means For Bidding and First Page Bid Estimate
You shouldn’t feel compelled to bid all the way up to or past the FPBE number. Check your Average Position, and Impression counts before making a decision.

The effect of seeing the First Page Bid Estimate is to feel compelled to raise your bid to hit it – at least. That might be a good idea, it might not, and it may not be necessary (assuming your goal is a page 1 appearance with 100% Impression Share).

Test the impact of bids around the FPBE on both your position and impression count – it’s possible you’re below but losing very few impressions.

What Else It Means
Google is still hiding too much from advertisers.

The move to First Page Bid Estimate was a positive one, but we’re still not told:

• How they decide how many ads to show for any given query,
• How they establish minimum bids for a particular query (the price the lowest appearing person pays)
• How they determine the bid requirements of a Top Position (and what it is for any particular keyword or query)
• And our only clue about any of this – Impression Share – is still available at the Campaign Level only.

We’re left guessing and testing when we’re rather be considering and deciding.

NOTE: This is the 2nd post in a series. The first one is here.

A nice surprise from Google today, with the release of independent statistics for ad-group performance on the Google ‘Search Network’ – sites like AOL and Ask.com.

This is no doubt related to the Google-Yahoo deal and clammoring on this blog and elsewhere about the issues involved in integrating those reports. It’s great that reporting is now separate – next we need separate bidding options like they provide for the Content Network.

Interestingly, in one of our campaigns the search network bid is set to ‘auto’. I don’t know what that means. Are they going to auto-lower bids on search partners? Better than keeping them the same as bids on the Google network, but I’d still prefer advertiser control.

The search engines have an inventory of ad space they want you to buy. They want you to pay the highest price possible, although they obviously have to work within market conditions and create (or even deliver) value.

They operate highly complex, extremely secretive ‘auctions’ based on rules and algorithms they choose not to share – in small part for competitive reasons but mostly because doing so would degrade their revenues and the relationships they have with advertisers.

And when they make a change to the rules or algorithms under which we all choose to advertise, they inform us via blogs and notices within their software, which not surprisingly puts the changes in the best possible light.

The same is true when they simply try to explain how the system works in an effort to educate. This is fair and reasonable, to a point.

As mentioned in the earlier post on this topic, their job is to make money, yours is to be an educated and wary consumer. But there is a point where self interest and ‘marketing bluster’ turns into white-washing and deception.

How Honest Should They Be?

I think the line between marketing hype and accuracy should in part be based on the complexity of the topic, the chance that the advertiser can know or will likely be advised that the positioning is rather one-sided, and the magnitude of the cost of the deception, among other variables.

Against these measures, I think all the engines regularly go way too far in surrounding important and costly issues in friendly sounding and rather inaccurate language.

Take for example the following excerpt from a recent Yahoo blog post about what to do (and even think) when your ads aren’t displaying all the time:

If your ads are not being displayed as often as you like, it may be time to take a look at how your spending limits and bids are set. To help get your ads displayed more often, consider increasing your spending limits. If that’s not possible, there are ways to work within your means and still compete with the deep-pocket competition.

While you may not have the advertising budget to maintain round-the-clock ads in top positions, there are ways to help get your ads in front of searcher eyes more often at lower cost. First, go for specifics. Consider selecting keywords that have lower minimum bids and are targeted for a specific service or product that a searcher may specifically type in. Not only are these “tail” terms likely to be more affordable than general terms, they are less liable to blow your budget.

If you translate that happy sounding stuff into english, you find that Yahoo suggests spending more money and buying more of their unused inventory.

They do this while perpetuating the falicies that one searcher is as good as the next (regardless of the keyword they match let alone the query they type) and that higher positions are inherently better than lower ones. And they get a bonus 10 point for gratuitous use of the pop-culture phrase ‘tail terms’.

They also fail to discuss the many other ways you could likely work on improving the situation – the ones that don’t make them any more money.

Yahoo Fisked

Let’s take it line by line:

If your ads are not being displayed as often as you like, it may be time to take a look at how your spending limits and bids are set.

We start by subtly setting up what is probably a false premise, although they do it cleanly by disclaiming that ‘it may be time’.

If your ads are not displaying as often as you’d like, the first things you’d want to consider are the keyword selection itself and the associated match types, and then the reported (or likely) ‘quality index’ in terms of alignment between the keywords, ad-copy, and landing page terminology and content.

If a bike has a flat tire and rusted chain, pushing harder may work but it isn’t the best initial advice. Paying more is usually just pushing harder on a system where something is out of whack.

To help get your ads displayed more often, consider increasing your spending limits.

Again, the first suggestion is to push harder. There’s no margin in putting air in the tires.

If that’s not possible, there are ways to work within your means and still compete with the deep-pocket competition.

OK, a positive statement. You can find a way to make your business work. We’re here to help. Great.

While you may not have the advertising budget to maintain round-the-clock ads in top positions, there are ways to help get your ads in front of searcher eyes more often at lower cost.

Uh Oh. A quick drop into bad-assumption hell. Four things you may not neccessarily want to do – maintain round-the-clock ads, run them in ‘top-positions’, get your ads in front of more ‘eyes’, and even get a ‘lower cost’. It’s a nice sounding sentence, but based entirely on an over-simplified characature of how PPC works.

What we want, in the real world, is to get conversions at the highest ROI. From there we work backwards and get the best clicks (ie from the most qualified users as defined by the topic of their query and/or the history of similar conversions) at the lowest price. To do this we want the right people to see our ads, however many of them there are. Eyes are generically not valuable, cost is relative to return, and time of day and position are not ‘more is better’ things regardless of the common perception.

First, go for specifics. Consider selecting keywords that have lower minimum bids and are targeted for a specific service or product that a searcher may specifically type in.

The first piece of good advice thus far, ironically, is to ‘go for specifics’. To bad it’s passed off in such a general and ultimately misleading way. We want keywords that attract queries which are both highly relevant to our subject and if possible demonstrate intent towards serious prospects.

While we all want to have lower costs, making lower bids the (or only) criteria is silly. We want the lowest possible bids for keywords which generate conversions. If you really want lower minimum bids, leave Yahoo and go bid on a 3rd-tier engine. That’s not good advice because the traffic is of such substantially lower quality that it more than offsets the lower bid – obviously.

The idea of ‘going for specifics’ is excellent advice if it’s clear that it means increasing the targeting of your keywords (or more specifically narrowing the range of the queries you attract) and doing a better job of valuing specific keywords via the use of negatives, match types, and bids. I’m sure that’s what they meant.

Not only are these “tail” terms likely to be more affordable than general terms, they are less liable to blow your budget.

The tail wags the dog here, again. Buy cheaper words so you can stay in the game longer. Shouldn’t the idea of conversions, revenue, and return get a mention?

Are we playing at the $5 table in Vegas or Atlantic City because we know we’re going home broke but we really want to be able to play all weekend? Sure sounds like it.

Let Me Try It

This review may sounds a bit harsh and over-reactive. Yahoo is just trying to give some friendly advice, and taken with a less critical eye it’s just another generic piece of questionable advice.

But this isn’t advice from just another search blogger or ‘guru’. This is from a company getting thousands or tens of thousands of dollars from people who will take this advice to heart and move forward making bad decisions as a result.

Consider this alternative:

If your ads are not being displayed as often as you like, make sure you’re bidding on keywords directly relevant to your offer, and that your text ads and landing pages are directly aligned in both word usage and clearly focused context for those words. If they are, it may be time to take a look at how your spending limits and bids are set.

Your goal should be to see your ads displayed as often as possible to searchers who are likely to purchase your goods or services. With proper setup and management you should be able to generate a good number of sales within your means – even when competing with the deep-pocket competition.

Make sure that you’ve chosen as many different highly relevant keywords as possible – the more specific the better. Very general terms and category names usually have a lot of competitive bidders and therefore see higher per-click costs. If you want your ads to appear for these keywords it may be necessary to both raise bids and increase budgets – although a better Quality Index (a big part of which is higher click through rates that come from well written creative) can help minimize those.

More focused words and phrases are often overlooked by many bidders, despite the fact that advertisers often see higher conversion rates from more detailed keywords. So you may experience lower costs and higher revenues!

An approach like this gives more balanced information to search advertisers, helping them to become successful and therefore keep advertising. Which produces better long term results for Yahoo as well as their clients.

Sure it takes a little longer to think through and then write with more meat and less marketing fluff. And it both provides and expects more from readers – they may not undertand all the terms and concepts and will therefore have to seek out explanations.

But I think advertisers deserve and would appreciate the additional effort and information. And it would be great to not have to be so suspect of everything the engines say and do.