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Bidding Basics—Not So Basic After all!

Posted By Mary Hayes On August 21, 2009 @ 6:11 am In Featured,SEM | No Comments

As a creative editor, I consider myself to be more of a wordsmith than a number cruncher. When it comes to keyword bidding, I almost always leave that task to those who know best: account managers, analysts, computers… you get the idea. Let’s just say, the left side of my brain is slightly atrophied.

But since joining TSA, that part of me has been through quite a workout. Most recently, I read a blog regarding the relationship between ad position and conversion rates [1]. In it Google reports, based on its own research study, that there is very little, if no, connection between ad position and conversion rate. Interesting. But even more interesting to me was one particular side note from the author:

“…the average [ad] position number reported by Google [is an] average over all auctions in which you participate. If you increase your bid, it is quite possible to see your average position move lower on the page! … This effect can be large enough to push your overall average position down.”

News to me—perhaps not to the SEM world as a whole—but still, news to me. I decided to dig deeper. But in order to wrap my head around this concept and truly understand how to heed its intended advice, I had to get down to the basics—and I mean basic basics.

You see, when I read a statement like the one above, my right brain immediately goes into daydream mode. It doesn’t even bother trying to decipher anything remotely mathematical. Once it sees words like “average,” “bid,” or “number,” it begins to retreat. My left brain, on the other hand, goes into overdrive (remember, it’s a bit out of shape). Dreadfully weak and terribly oxygen-deprived, it can only begin to understand if the original statement is dissected into several, smaller parts.

And so, without going into too much detail, I wound up revisiting one of the most basic concepts behind SEM, the “auction.” Before today, I thought I had this concept down. Not so. When boiled down to its most basic definition, I could finally understand why bidding higher on a keyword can actually lower one’s ad position on the page. Yes, not just as an average across an entire account, but on the actual Google page itself.

I like Google Chief Economist, Hal Varian’s take from “Introduction to the Google Ad Auction [2]” in which he says, “Every time a query is made on Google, we run an auction.” So, every time, literally every time someone types a query in Google, a new auction is taking place. So based on a query’s popularity, an auction on that query could theoretically occur dozens to millions of times a day.

Considering that the bidding landscape is always changing, meaning you and/or your competitors are modifying bids on the same query at any given moment, your ad position is always fluctuating. What we see in the Google UI is the average ad position across dozens to millions of individual auctions. Relating this back to the original statement in question, it is quite possible to lower an ad’s position by raising its bid – either on the search query page or on average. The reason being:

  • A higher bid will most likely lead to more impressions [3].
  • More impressions means more auctions.
  • More auctions means more competitors.
  • More competitors means new competitors.
  • New competitors means new (and possibly higher) bids to compete against.

To sum it all up, let’s say your ad was in position 2 while bidding $1.00. You raise your bid to $2.00. In raising your bid, you think you’ve one-upped the competition, but in actuality, you may have opened up the floodgates to a whole new host of competitors—wealthier, more aggressive competitors who have already taken your $2.00 and raised you another $2.00. If your $2.00 bid is now competing with $4.00 players, your position 2 ad might sink down to number 6.

Get it? If not, don’t worry. You’re probably not alone. The fact is, while breaking down a particular concept into smaller, simpler parts might help one understand each piece of the puzzle better, it is fundamentally just that… one piece of the puzzle. What about quality score, ad creative, time of day, etc? All of these factors combined are really what determine the success (or position) of an ad.

The point is, while SEM is a vastly complex, ever-changing ‘science’ that requires its experts to be well learned and versed on the latest concepts, technologies, and trends; it never hurts to just take a step back—way back—and review the basics.

You might learn something new.

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URL to article: http://www.thesearchagents.com/2009/08/bidding-basics%e2%80%94not-so-basic-after-all/

URLs in this post:

[1] relationship between ad position and conversion rates: http://adwords.blogspot.com/2009/08/conversion-rates-dont-vary-much-with-ad.html

[2] Introduction to the Google Ad Auction: http://adwords.blogspot.com/2009/03/introduction-to-ad-auction.html

[3] more impressions: http://adwords.google.com/support/aw/bin/answer.py?answer=146401

[4] Google to Update the Way Quality Scores Are Displayed in AdWords: http://www.thesearchagents.com/2013/07/google-to-update-the-way-quality-scores-are-displayed-in-adwords/

[5] Average Position is a Really Perverse Metric: http://www.thesearchagents.com/2009/06/average-position-is-a-really-perverse-metric/

[6] The Hidden Cost of Using Budget Limits: http://www.thesearchagents.com/2009/12/the-hidden-cost-of-using-budget-limits/

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