• by Tameka Kee , June 25, 2008

While Google's growth has largely been built upon the ease and simplicity of use of its AdWords paid search marketing platform, the rules governing ad placement, ad quality and how much advertisers pay per click have become increasingly complex.

For example, the search giant made 20 quality improvements to Adwords ads in third quarter 2007 alone, according to Nick Fox, Google's director of business product management for ads quality and bidding.

With all the changes, it has become difficult for agencies--let alone independent advertisers--to use paid search in the most cost-effective manner, which is why search marketing firms like AdGooroo are constantly developing bid and campaign management technology, as well as research. And the latest research from the Chicago-based search firm highlights the correlation between ad placement, conversions and average cost-per-click (CPC).

Take ad placement, one of the factors advertisers try to influence when they make their bids. Attaining the top spot (either the first ad on the right side of the search page, or the first ad above the organic search results) would seem like a coup in terms of visibility, but AdGooroo's research found that the seventh spot was actually the most profitable for advertisers--particularly when bidding on broad keywords.

AdGooroo found that if an ad was not profitable in the seventh spot, increasing the bid to get it to a higher, more visible position did not increase the profitability, regardless of whether the ad jumped by one, or even four spots. In that case, bidding more is "pretty much universally the wrong strategy," said Richard Stokes, AdGooroo's president and founder. "Though it would seem like getting a higher placement would increase conversions, we found that the conversion rate doesn't increase nearly as much as your CPC. You should work on your ad copy or landing page then, or even stop bidding on that keyword all together."

In contrast, niche terms fared much better with higher placement, particularly the second and third spots. According to the report, bidding to snag the second or third spot with longer-tail keywords was key to profitability. And unless an advertiser had tracking reports to prove that the number one spot would be profitable, bidding for it would be a waste of budget.

AdGooroo studied the performance of more than 300 search phrases (or keywords) over the course of December 2007. Each phrase had received at least 200 clicks during the test period, and had fluctuated in terms of position by at least one spot. The search firm took CPCs, click-through rates (CTRs), conversion rates and data like average order size into account when determining an ad's profitability. The study, titled "How keyword length and ad position impact clickthrough rate and cost-per-click on Google AdWords," is available as a free PDF on the company's Web site.