• by Joe Mandese  @mp_joemandese, September 16, 2008

A tweak Google announced Monday to the so-called "quality score" it uses to manage its AdWords program is expected to result in hundreds of millions of dollars in incremental ad revenues for the online search giant. The changes, which Google said it would begin implementing over the next several days, is expected to boost average click-through rates for AdWords advertisers, and increase Google's advertising yield by moving to a "real time" valuation.

Google said it would begin calculating AdWords quality scores in real time at the time of each search query, in addition to its previous method of evaluating historical click-through rates and landing page quality. The change is expected to boost click-through rates by improving the targeting of AdWords buys.

"The available keyword pool will increase through the removal of 'inactive for search' status," JPMorgan analyst Imran Khan wrote in an equity research note sent to Google investors this morning. "Previously, keywords that were marked 'inactive for search' would never show ads on Google.com, even if they were a high quality match for queries. Now, all keywords are active which increases the available keyword pool. We think this could lead to increased coverage if relevant ads are now accepted for pages which did not have ads."

Khan estimated that the new keyword bidding metric will drive cost-per-click bids higher than current Google's previous method yielded, noting, "Instead of posting a minimum bid, Google will now provide a "'first page bid estimate,' which will give advertisers a guide as to the bid needed to have the ad appear on the first page."

Khan projected that the higher yields would increase demand from advertisers that would result in "higher first page bid estimates" and higher cost-per-click bids, reaping Google a windfall in incremental advertising revenues.

"We think these changes are a positive and could potentially provide upside to our fourth quarter and fiscal 2009 numbers," Khan concluded, estimating that "just a 1% change in coverage and pricing could add an additional $100M to our fiscal 20009 Google Web site revenue estimate."