Implications of Google's New Bid Calculations

Maybe I am having an off week, but Google's announced changes to the PPC cost calculations seem a little like a magic show and the expected audience is novice search advertisers.

Their FAQ about the coming changes started my apprehension. I always was under the assumption that your Max CPC was factored in to the calculation. I remember being given a lesson about 4 years ago about Max CPC x CTR = eCPC which was then used to order the rankings and the prices were determined from there.

Okay then they added the Quality Score which included values for landing pages and criteria of the information in the ads themselves (keyword insertion seeming to be one of them).

Google states "The core components of the top ad placement formula will remain price and quality. However, we are improving the way we factor price into the formula. We're also adjusting the way your actual cost-per-click (CPC) is determined for ads in top spots. As always, only ads that meet our stringent quality requirements will be eligible to appear in top spots"

No longer will the CTR impact the eCPC.... The max bid is not stand alone like Overture but is impacted now by Quality Score as opposed to CTR. Does this mean they have no faith in the quality of the decisions made by their users - the CTR?

"[I]f you have a high quality ad, you now have more control to achieve a top position by increasing your maximum CPC," Google seems to be greedily stating.

So does the Quality Score now include CTR? Will keyword insertion now be a major factor? Who makes the human evaluation? The users and click backs are counted? Or is Google Analytics being used? Or some form of behavioral response?

Or is an effort to have more long tail terms being exact matched the reason?

"We anticipate that most of your ads will continue to perform as they have in the past. In some cases, you may see that ads previously shown alongside search results are now shown in top spots, and vice versa. As a result, you may see a change in the average number of clicks and average CPCs for impacted ads," they state.

Is this just in case it does not work properly?

One wonders whatever happened to if it is not broke don't fix it.

Please let me know what you think.

About the author

Frank Watson has been involved with the Web since it started. For the past five years, he headed SEM for FXCM -- at one time one of the top 25 spenders with AdWords. He has worked with most of the major analytics companies and pioneered the ability to tie online marketing with offline conversion.

He has now started his own marketing agency, Kangamurra Media. This new venture will keep him busy when he is not editing the Search Engine Watch forums, blogging at a number of authoritative sites, and developing some interesting online community sites.

He was one of the first 100 AdWords Professionals, a Yahoo and Overture Ambassador, and a member or mod of many of the industry forums. He is also on the Click Quality Council and has worked hard to diminish click fraud.