<new>This is an older draft that’s well past the date when people were freaking out about this change to the top position. However, I think it does give some insight into Google being able to both maximize profits and maximize the consumer experience</new>
I’ve been examining the changes to the AdWords Formula for top position ranking (From Inside AdWords) to discern it’s impact on advertisers, and while the change is subtle, there are a few items worth nothing.
Quote from the blog post:
The key change to the formula will be how we consider price. Todayâ€™s formula considers an ad’s Quality Score and actual cost-per-click (CPC). The improved formula will still heavily weight Quality Score, but instead of actual CPC, it will consider an ad’s maximum CPC.
When I originally saw this, it seem subtle. AdWords blog post states that there’s a larger pool of advertisers eligible for this spot – which I believe to be true. Advertisers are becoming more sophisticated, learning more about AdWords, and slowly becoming more sophisticated in general.
Therefore, it makes sense to give advertisers more control of showing for that top spot. By changing the formula to use the max CPC instead of actual, an advertiser can opt to ‘force’ their way to the top spot.
It must be noted, before one can force their way to the top, the ad must already meet higher quality score metrics than a typical ad. You will rarely see a poorly written ad, or irrelevant keyword ad, show in the top spot.
Then I read an independent research report from Merrill Lynch that stated Google might see a 2% increase in revenue due to this change. Interesting. The change does give advertisers more control, however, its also good for the bottom line. A win-win overall (and some will see this as Google trying to pull more dollars from advertisers).
However, what wasn’t mentioned in the blog post was how it will affect preferred cost bidding.
<added>Turns out not much. For preferred cost bidding, Google is determining much of the max CPC on the backend, and they are doing the same for this change</added>
As advertisers should be bidding to an ROI basis – does the formula change matter to those sophisticated bidders?