Lower Your Adwords Cost by Leveraging Googles New AdWords Ad Rank Algorithm

Lower Your Adwords Cost by Leveraging Google’s New AdWords Ad Rank Algorithm

The Ad Rank algorithm update was almost inconspicuously set in motion by Google in October 2013. The most visible feature in this Ad Rank update is that now ad extensions will have an effect on how Google positions ads in its search pages.

Formats and ad extensions now have the capability to influence an ad’s positioning on the SERP. Google Adwords Ad Rank would place the ad with high performing ad extensions in a higher position if there are identical ads having similar quality score and bid. Ad Rank is also now more significant in determining whether a particular ad is shown with extensions and formats. Google mentioned that a higher bid, higher quality score or both could increase the chances of the appearance of extensions and formats.


How Google’s Ad Ranking Works

To better understand these concepts, let us learn how Google ranks ads on its SERPs. As we already know, Ad Rank, which is basically the ranking assigned to any ad, determines how the ads are positioned on a search engine results page. This makes Ad Rank very important since it impacts the visibility of ads to potential customers looking for stuff they need. The higher the ranking, the higher is the positioning on the SERPs.

Here’s how Ad Rank is determined for an ad. It is the highest CPC (Cost per Click) bid the advertiser can make for his ad multiplied by its quality score. The advertiser with the highest number from this calculation –maximum CPC bid x quality score – secures the top spot in the ad positioning.


Ad Rank and Cost per Click (CPC)

Now we need to know how Ad Rank affects cost per click. Ad Rank plays a really major role in fixing how much our rivals pay when a user clicks on their ads. In other words, the Ad Rank of the advertiser who is directly below us helps determine our price or cost per click.

Our CPC equals the Ad Rank of the advertiser directly below us divided by our Quality Score plus $0.01. Our cost per click, which is what Google actually charges for our ad (not the maximum we are willing to pay which is our CPC bid) when someone clicks on it, is also determined by what our competitors would pay for a click and their quality score.

A high quality score and Ad Rank can enable an advertiser to pay less for a higher position. Ad Rank determines the ad positioning plus the CPC of the closest competitor. With the new update, ads having high performing extensions and formats will receive higher ad positioning as well.


Impact on Advertisers

So how will this affect Internet advertisers? Ads with extensions that would perform well according to Google estimates could experience greater click-through rates and lesser costs per click. Higher CPCs could be a result of an improvement in the positioning of the ad or greater competition arising from the other ads that have a high expected impact from their formats. Google is now making advertisers employ extensions in ads, and it surely needs to be considered by advertisers since it makes an impact on their Ad Rank. Google states that the ad platform can automatically choose the ad extensions that must be used based on the best click-through-rate performance. Presently, Google Ad Rank only has the capability to affect ads on the search engine’s results page.


Google’s Obsession with Extensions

Observers would know that Google has been fully focused on creating ad extensions in 2013, particularly the image and review extensions in June followed by an August update for mobiles and multi-screens. There is a reason behind Google’s push towards extensions. They help make ads more interactive and useful, enabling marketers to share more details to potential customers and ensure that they connect well. One example of an extension that can be of great benefit to local businesses is the new click-to-call extension.


Google Explains

In Google’s AdWords blog, Staff Software Engineer Chris Roat explains that ad extensions help people who use Google to research products and services and buy them, get more information about the services a business offers, and how to access them faster. Click-to-call extensions help take care of the communication aspect, while other kinds of extensions such as business location on map, business number to call, relevant landing page promotion with Sitelinks, etc also help make these ads more customer-friendly. Ad extensions have been found to be beneficial not only to potential customers but also advertisers. They ensure ads are more useful for users and thereby improve the click through rate as well as overall performance of their campaign.

All these hold greater relevance when we observe research from Google in September which revealed 70% of people who search through a mobile get in touch with a business directly from what catches their eye in the search results page.

Ad Rank is basically like the earlier updates of the year except for the fact that we could get penalized if we do not use extensions, and our rivals get the chance to influence our cost per click when they experience a rise in Ad Rank.


Getting Extensions is Vital

Use ad extensions and get the Quality Score and CTR increased, all of which helps bring down the CPC. Our competitors’ Ad Rank is vital in determining our CPC. Their use of ad extensions could raise their Ad Rank which would in turn boost their ad position, while bringing down ours and also raising our CPC. If we have implemented extensions, we will be able to influence our competitors’ costs while also boosting the performance of our own campaigns. So if we’ve┬ánot employed extensions and our competitors have, it’s obvious how adverse it could get.


What Marketers Need to Observe

Here are some aspects marketers need to watch out for:

Average CPCs are likely to increase. This will happen when more and more advertisers begin adopting extensions. It will give them higher ad ranks on an average. CPC being directly proportional to the nearest rival’s ad rank, could go up as a result.

Now marketers will need to be more receptive to CPC and ad positioning changes. This Ad Rank update makes them more vulnerable to what their competitors are doing, making it vital to keep optimizing their campaign. While the buzz is around extensions, it is important to ensure that the extensions chosen are relevant to the business, since only extensions for which Google projects high performance will bring about improvement in the positioning. Google has many extensions and ad formats to check out.


Questions about the Future

Some experts have posed two questions:

  • Would the space for paid advertising in the SERPs keep growing and barge into the organic results since every advertiser will now employ extensions that will make space on the SERPs a premium?
  • When advertisers begin employing ad extensions to boost their Ad Rank, Quality Score and CTR (click through rate) and bring down CPC, and their rivals also do the same, will the advertisers be even since no one would have a significant advantage over the other?


Theories Surrounding Google’s Ad Rank Push

Now there are theories abounding as to why Google chose to update the Ad Rank algorithm. One of these is that Google is all out to give a better user experience for sincere searchers. It wants really helpful and relevant results to come up in both the organic listings and paid ads. After emphasizing on Quality Score, Google is now pushing for extensions. This argument seems fair enough.

The next one appears to be more diabolic and addresses one of the aforementioned questions posed by experts. This theory suggests that Google is gradually expanding the paid ad section at the top of the SERP and pushing down the organic results. Why? To direct searchers’ attention more towards the paid listings. Generally people tend to avoid paid listings and focus straightaway on the organic results. But with all the ad extensions, ad sizes would get bigger and bigger and could easily lead a searcher to click them before he clicks on any organic listing.

Another theory doing the rounds is that the new Ad Rank update will lead to more intense competition in the Pay per Click field, which will translate to greater revenue for Google. The need to be in the top positions in the SERPs will motivate businesses to raise their bid amounts since it would be faster than building up the Quality Scores.


So What Impact Will This Have on SEO?

Marketers, particularly small and medium-sized businesses, would have had to deal with many of these AdWords updates this year and this just adds to the burden. Adding extensions is no longer an optional arrangement. Now marketers have no option but to quickly get up to speed with the current situation – they need to add extensions ASAP.

While users will now get more quality paid ads that would possibly give them what they need, the big question is: will the new Ad Rank update adversely affect SEO? For now that does not seem to be the case. But eyes and ears need to stay open to observe how far Google will take this. Will SEO be at the receiving end and will small and medium-sized business be pushed more?

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