Winning The Click: Inside Google Ad Auctions

Winning The Click: Inside Google Ad Auctions

Ad auctions are defined as ‘the method used to decide the cost and placement of digital advertising on certain ad networks. A new ad auction occurs each time an ad is placed on an ad network.’

Publishers are running ad auctions as a way to maximize revenue. Auction logic is used by an ad decision engine to select the ad that is most likely to deliver the highest payout. For instance, if ten advertisers bid for one ad slot, the ad server would select the advertiser who is bidding the highest, similar to how an auction is run in the real world.

When there is a search query on Google, Google Ads runs a quick auction to determine which ads will show for that search query, and what the ad positions should be. This ad auction is repeated every time an ad is eligible to appear for a search term out of the billions searched each day.

What is Ad Rank? The ad with the highest Ad Rank would be shown in the top position of the search results page for a relevant search term, followed by the ad with the second-highest Ad Rank, and so on. Ads that do not meet the Ad Rank eligibility criteria will not be shown on Google.

Ad Rank = Max CPC Bid x Quality Score plus additional factors like the impact of ad extensions and ad formats, Ad Rank thresholds, search context, and competitiveness of auction. Thus, spending more does not necessarily guarantee you the best Ad Rank.

What is CPC? Cost per click (CPC) is the price you pay per click on your ads in your pay-per-click (PPC) marketing campaigns. When you set up a Google Ads PPC campaign, you set the max CPC bid for the keywords in your account. The max CPC bid can be set up at the keyword level or at the ad group level. While CPC costs can vary depending on your industry, the average CPC in Google Ads is $2.69 for search and $0.63 for display. CPC pricing is also called PPC or pay-per-click. Hence, Google Ads is called PPC or pay-per-click advertising.

The actual cost-per-click (CPC) that advertisers pay in an ad auction is influenced by the projected pCTR of their ads. Essentially, ads with the higher pCTR can achieve better ad positions at a lower actual CPC compared to ads with lower pCTR. This enables advertisers to create highly relevant and engaging ads, aligning with the user intent. Improvement in pCTR results in more efficient spending and better ad placements.

Google Ranks Ads Based on CPM

CPM (cost per thousand impressions) auction and also pCTR are equally important factors. When advertisers bid a maximum CPC (or set a tROAS or tCPA, which gets turned into a MaxCPC at the time of each auction), and combine with pCTR, enable you to get estimated CPM (eCPM).

The auction is won by and the ad with the greatest eCRM. Ad rank and eCPM are interchangeable because the auction is won by the ad with the highest ad rank. This all meant that Google wants to sell ads to the advertisers with the highest CPMs.

Furthermore,

pCTR, a dynamic metric influencing ad placement and cost, is calculated for each auction based on the specific context of the search query. Advertisers with high pCTR benefit from lower CPCs and better ad positions, as the system rewards more relevant ads and provides a better user experience.

High-quality ads that resonate with users are more likely to achieve higher pCTR, reducing overall costs and improving campaign effectiveness. This dynamic nature of pCTR enables advertisers to continuously strive for improving ad quality, benefitting both users and advertisers.

Some aspects surface during the trial include :-

1. Thresholds And Reserve Prices

Ad rank thresholds determine your ability to compete in an ad auction, determined dynamically at the time of each auction based on various factors including your ad quality, Ad position, user signals and attributes like location and device type, as well as the topic & nature of the search.

In Google Ads, reserve prices are the minimum bid you need to have for your ad to be eligible to show. Do not matter if you have competitors or not, but of your bid is lower than the reserve price, you ad won’t appear. Auction reserve prices create a barrier to entry that can help minimize spam advertisers entering the system. For example, keywords like "mesothelioma lawyer" could be overrun very quickly if there were no barriers.

2. Out-Of-Order Ad Promotion

Out-of-order ad promotion is used when an ad with a lower ad rank is allowed to be promoted above an ad with a higher Ad rank. Google may say that an ad can only be promoted to the top of the page if it has at least a certain level of relevance (pCTR).

Ads are promoted based on factors beyond just the bid amount, which benefits advertisers. The high-quality ads have a chance to appear in top positions even if their Ad Ranks are not the highest. This ultimately helps small advertisers to effectively compete against larger competitors with bigger budgets.

advertisers are incentivized to create more engaging and useful ads, ultimately leading to better user experiences and higher conversion rates.

3. Randomized Generalized Second Price (RGSP)

RGSP is a practice leveraged by Google that picks the winner of an ad auction at random from the top bidders as long as their long-term values (LTVs – a Google calculation that is essentially the same as Ad rank) are close enough.

This mechanism helps prevent ads with high predicted relevance from consistently hogging top positions, promoting a diverse range of ads. By fostering a competitive environment, RGSP mechanisms enable advertisers to focus on ad quality and relevance, which can lead to better performance and higher return on investment (ROI)