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The Google AdWords Auction & Bidding Rules

The Google AdWords Auction & Bidding Rules

Thursday, November 26, 2015
Mike Fantis

While we, as advertisers, are clear on how the AdWords auction works we think we’ve found a couple of, shall we say, kinks in the model and bidding options.

AdWords Auction:

The auction model takes a number of factors into consideration when calculating the ad rank. This model is to help ensure that users get the most relevant ad. It also separates the experts from the cowboys as advertisers look to maximise relevancy, minimise wastage and focus on efficiencies. (This is one of the reasons why sole traders sometimes get their fingers burnt with AdWords.) The model is also supposed to protect against the brand with the biggest budget from winning every auction. Adding relevancy and quality score gives smaller brands a chance to appear and compete where they are more relevant than their larger competitors. So far so good. We’re all on the same page. What happens in reality if a competitor has far deeper pockets? We accept that we can’t win the auction for every keyword, especially for generic terms. (I.e. Appear in position 1.) But is it right that brands can actually be outranked for their own brand terms just because the competition has a much larger budget? This scenario is within the Google guidelines but should advertisers be able to inflate ad rank by placing ridiculously high maximum CPCs? Let me explain in more detail. Brand A has a CTR of 40%, a conversion rate of 15%, a quality score of 10 and is paying 10p for their own brand terms. It isn’t possible for Competitor B to be more relevant for Brand A’s branded keywords but they can make up for this by placing a max CPC of £50. I can hear shouts of “if they have the money then why not”. If Brand A wants to protect their position they must now pay £50.01. This example of how the auction can behave allows for ad rank to be manipulated by CPC. Regardless of relevancy and quality score advertisers can still buy their way to the top of the auction. Surely this goes against the fundamentals of the Google algorithm and what it is designed to deliver. Is this ensuring the user gets the most relevant result? Not really. You could argue that Brand A are still appearing and the user is getting choice, but Is this rewarding relevancy? Not entirely as CPC is the defining factor. As we know the Google auction is closed so it is impossible to truly know the factors driving the CPC increase. It was once against Google policy to appear for a trademark search, but competitors can now appear above the trademark owner for their own terms. It is hard to imagine the model will start to reverse but maybe it is time for a different auction model for branded/trademark searches?

Bidding Options:

Google launched the bid above domain functionality. This is handy when you want to manage the above scenario automatically, but Google don’t seem to have considered what happens when Competitor C joins the party. Competitor B and Competitor C both apply the bid above the domain rule against Brand A for Brand A’s own terms. Brand A wants to retaliate by using the same rule. You can only set this rule for one domain at a time. When this bidding rule is in place advertisers can’t use any other bidding options. This means that to contend with multiple competitors this needs to be done manually or via AdWords scripts. Flexible Bid Strategy It is currently very difficult for brands to protect their own real estate within the SERP. We expect the automated rules to continue to evolve and we’d love to see more flexible rules available that can also work together.

Mike Fantis
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