• by Tameka Kee , August 14, 2007

Google's announcement last week that it will tweak how "high quality ads are selected for top positions above organic search results" has caused a flurry of comments in the blogosphere, with some Web masters asking if "Google Killed the SEO Star" and others, whether the change represents a "Ray of AdWords Hope".

Where the search giant once determined top placement using a formula that combined an ad's Quality Score with its actual cost per click (CPC), the new formula (which has no official rollout date) will still heavily weigh Quality Score, but also consider an ad's maximum CPC.

Some have accused Google of changing the formula as a way to squeeze more revenue out of advertisers. But the search giant has responded with a strong "No way." In a detailed FAQ, the AdWords team explains that the new formula is in line with Google's goal to "ensure that users get the best search results possible." In addition to improving the overall quality of the ad results, the tweak is aimed at giving advertisers "more control over achieving top ad placement," the FAQ says.

The FAQ also says that an ad's eligibility to be promoted to a top spot no longer depends on the lesser bids of competitors --but that still doesn't mean that advertisers can essentially "pay for the top spot."

Search marketing specialists from WPP's Neo@Ogilvy, Aegis Group's Carat and New York-based Elite SEM all weighed in on the changes, revealing varying levels of impact and concern for advertisers.

According to Randy Schwartz, director of SEM for Carat's New York office: "In a roundabout way, it will be in the best interest of the consumer. If advertisers are willing to pay a little more on the CPC, it gives Google more leeway to test and make sure that the ads they're delivering are the most qualified."

Still, the dollar signs at the tail end of the change are obvious. "By asking people to bid higher, they can presumably collect a higher CPC," said Schwartz. "It means more money for Google and the publishing partners."

Advertiser concern over how to attain top placement is nothing new, added Schwartz, as the change lives in "the difference between a maximum bid and an actual CPC--a differential that has been fairly opaque. And nobody has a clue as to how the Quality Score really works into the algorithm--it's kind of like a black box scenario."

Ben Kirshner, president of Elite SEM, said: "It's a huge win for Google from a profitability standpoint. And large advertisers will like it for their trademarked terms, because it will help them stay on top." But Kirshner added that it will spark bidding wars and inflation--even if only for a short time.

"For example," he said, "if you're Ford and you want to be number one for the word 'cars'--you bid $10, then Toyota hits $20, and Mercedes goes to $25--everyone jacks up their max CPCs and it raises the price across the board."

But having an ad as the top paid search listing is not always the most beneficial position--and advertisers who bid with their egos (and the SEM firms that allow them to do this) will feel the brunt of the change. "Clients who bid with ego are Google's best friends," said Kirshner. "The first position may get the most traffic, but not necessarily the best traffic. And if they focus on just being number one instead of conversion rates and other goals, then they're never going to make any money."

Bill Hunt, global search strategist for Neo@Ogilvy, pointed out that agencies and advertisers using AdWords can no longer set CPC rates arbitrarily. "The rates have to be thought about a little more," he said. "If they just set a max bid number because they think that the competition can't reach it, then the bidding tool will take the client up higher than they wanted to be."

Large advertisers with keywords in the tens of thousands may have to be especially careful, as sometimes they focus on the CPC rates of the first hundred words--neglecting to manage or evaluate the rates on the "long tail" words as scientifically, Huntley said, "but most smart clients and SEM firms have this dialed in across the entire portfolio."

While smaller advertisers may be affected by the pricing change, they have an advantage over larger companies in that they can more easily influence the Quality Score part of the equation. "A smaller advertiser can tweak a landing page or make adjustments to ad copy quickly, raising their Quality Score," said Huntley, "while a larger company might have to go through levels of management for ad clearance to make changes."

Huntley added, "It's going to end up costing everyone more money--but the more sophisticated search marketers and their clients won't really be impacted."