Last month, Google announced that they'd be making some changes to the algorithm that calculates ad positioning for its advertisers using the Adwords program. Because of the insane level of detail with which many search marketers delve into their adwords' campaigns, even the slightest change in the algorithm doesn't go unnoticed in the SEM field. This change, however, appears significant enough that it may have an effect on even the casual search marketer.

Back in August, the official Google Adwords Blog, Inside Adwords, detailed 3 changes to the Adwords algorithm that would begin testing immediately, and be pushed to all users in about a month. Just yesterday, the Adwords blog team posted that the changes would be going live in the coming days. The three changes are:

  • Quality score will now be calculated at the time of the query, as opposed to the previous static per-keyword method.
  • Keywords will no longer be marked inactive for search.
  • The "minimum bid" will be replaced with the "first page bid"

Quality Score Changes

A keyword's quality score is calculated by factoring in the historical performance (CTR), landing page relevancy and load time, and keyword relevancy. Now, all of those will remain a factor, but instead of determining a quality score before-hand, the score will be calculated at the time of the search query allowing Google to more accurately display your ad when its most likely to be clicked (or so says Google).

Google is often accused of not being transparent enough when it comes to their quality score calculation. Unfortunately, with this change in the algorithm, those accusations will likely continue. Google gives the following real world example of how the change plays out:

Nancy's Dairy advertises on the keyword 'milk.' Nancy's ads perform better on the keyword 'milk' in the U.S. than in Canada. Her ads also perform better on the query 'milk delivery' than on 'milk,' and better on certain search network sites than on others. Instead of one static Quality Score and minimum bid that determines whether the keyword 'milk' is eligible to trigger an ad for all search queries, we will now determine eligibility dynamically, based on factors such as location, the specific query, and other relevance factors. For that reason, Nancy's keyword 'milk' will be able to trigger an ad for search queries where it's likely to perform better, i.e., in the U.S., on 'milk delivery' and on certain search network sites.

This change gives Google more control and more transparency, which plenty of people will not like. When Google makes money on every click, yet don't disclose the reasoning behind the appearance of an ad, SEMs become testy. Google says "Your ads will be more likely to show when they're relevant and less likely to show when they're not." If you trust Google, who could complain about this. If you don't, the lack of transparency is frustrating.

Keywords No Longer Marked Inactive For Search

This change should not cause too much of a stir. Here's an example: If I were to begin bidding 7 cents per click on the keyword "Pepsi" with an irrelevant ad and unrelated landing page, Google would mark the keyword as "inactive for search." A combination of the very low quality score I'd surely receive, and the high avg. CPC bid from competitors, would keep my ad from showing.

Now, technically the ad could show. No ad will be marked as inactive because with this newfangled real time quality score calculation, under some ridiculously unlikely circumstances, my ad could be deemed relevant. Let's say that historically my ad's CTR is 90% for searches coming from Antarctica, during the hours of 3 and 5 AM, from AOL search, on users with Pentium 3 computers, running Windows 98. Well, then, Google may decide that my ad is relevant to that user, and thus display the ad.

Minimum Bid Replaced by First Page Bid

This change, in my opinion, comes about as a result of the other two. If keywords are no longer being marked inactive, then the need for a minimum bid is greatly diminished. Instead, Google will inform the advertiser of the minimum bid needed to reach the first page of the search engine results page. For keywords with low competition, this number will likely be low (maybe as low as the now defunct minimum bid). For high competition keywords, this number could be significantly higher than the minimum bid was.The way I interpret this change is that it is simply an information metric, and not a barrier to the first page. For instance, any keyword with a first page bid of $2 is that high because the competition has bid that number up that high. A keyword that has a high first page bid will almost certainly have a page full of ads when searched on Google.

Edit: Actually, this is not true. A keyword with a first page bid of $2 will not necessarily have a full page of ads. If Google gives a very low quality score, the first page bid could be high as well.

Conclusion

When Google says "Your ads will be more likely to show when they're relevant and less likely to show when they're not," your reaction depends on your trust in Google. Taken at their word, it sounds like a great change. If you're a skeptic (and it is your money they're dealing with, so maybe you should be), you might raise an eyebrow.

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