WSI Websmart Consulting Blog

What is Google's "Ad Auction?"

Advertisements on Google are bought via an auction. Each time a Google user anywhere in the world searches on Google, an automated auction takes place. Advertisers do not need to stand around bidding, they have set their bidding rules up in advance. Advertisers bid for placements, but they only pay per click. Higher ranking ads get more clicks by appearing higher on the page, but they pay more for each click. 

What Goes in to a bid?

Advertisers will define ahead of time what searches they want to appear on. For example, a mechanic may want to appear for the search term "broken car." The advertisers will enter a maximum bid and write an appropriate ad. A high bid is not enough to win the ad auction. Two more elements are taken into account: Quality Score and CTR.

Quality Score

Quality score is a semi-secret sauce. Google doesn't tell us exactly how it is calculated. They do tell us roughly what goes in to it though. The main ingredients necessary for a high quality score are relevant ad copy, a relevant landing page and a high click-through rate (CTR). An advertiser missing any of these ingredients will either pay more than necessary or appear lower on the page, often both.

Google Ad Auction Explained

The video below contain an explanation of the Google Adwords ad auction by Hal Varian, Google's Chief Economist.