Google Refines AdWords Bidding System

by Gavin O'Malley, Jul 18, 2005, 6:00 AM

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Giving advertisers a larger canvas on which to craft their AdWords campaigns, Google late last week streamlined its keyword status system and introduced minimum bids based on the ads' relevance. Some representatives from search engine marketing firms said the changes should have the effect of making more inventory available.

Google now will determine minimum bids based on a quality score that combines historical keyword performance among all advertisers with the performance of an ad from an individual advertiser, and the relevance of the creative, or ad text.

Prior to this change in policy, ads that did not meet Google's performance requirements were sometimes slowed, so these ads only rarely appeared for keywords. To restore the display of ads, advertisers had to make changes to improve the quality of the ad. Now, two possible scenarios exist for advertisers: Their keyword will meet a minimum bid, and will thus be active and trigger ads, or their keywords will not meet a minimum bid, and thus will be inactive and not trigger ads.

Also, some keywords, such as "encyclopedia," trigger so many organic results that Google did not run any sponsored links on the results pages. Some search marketing experts believe that the changes will result in ads even on keywords that trigger huge numbers of organic listings.

Industry reaction to the announcement was generally favorable. Joshua Stylman, managing partner at search engine marketing firm Reprise Media, imagined that the changes will help him better meet the needs of his clients. "We're excited because this will give us much more flexibility running ads," said Stylman, who added: "They'll be making a lot of money from marketers like us as we play with the new parameters of the system, testing different scenarios."

Google said that it wanted to make sure there was an economic incentive for advertisers to maximize the quality of their ads, according to Salar Kamangar, director of product management at Google. "A higher quality of ad placement raises Google's overall value," he said.

For ads that receive a high quality score, the minimum bid can run as little as a penny, said Kamangar. "Also, for ads that receive a low quality prediction, the new minimum bid could be higher than the previous minimum of five cents," he said.

Some search marketing experts said that regardless of what value Google places on a keyword, the market will naturally achieve equilibrium. "I'll be interested to see how long it takes for the market to bid up the [minimum] prices," said Charles Sardou, director of paid search at the search engine marketing firm icrossing. "But things should level out naturally."

And what is Sardou's explanation for the latest changes to AdWords? "Google's problem is that the search world is flattening out, and the number of clicks available times the cost is leveling off, plus the rate at which people are getting onto the Web is slowing," said Sardou. "Inventory is really the issue now."

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