StayOnSearch

Google’s Ad Rank EcoSystem: How Does It Work?

Ryan Beale July 16, 2010

In my last post, I discussed how to create a Google AdWords campaign. Before purchasing keywords on Google AdWords, you may be curious to know how Google in fact ranks advertisements. Have you ever wondered how Google ranks advertisements when you perform a search on Google? This post aims to clarify that question.

Google Ad Rank Equation

Ad Rank = MAX BID X Quality Score

Why Not Have Ad Rank = Max BID?

If Ad Rank = Max Bid, the highest bidder will always win the auction, regardless of the quality of the Ad. If the highest bidder has a low quality (irrelevant) ad, then searchers will be unhappy with the results of the search query.

What Is Google’s Quality Score?

In order to maintain the integrity of the search engine and keep users/searchers happy, Google must show relevant ads with each search query. Enter Google’s Quality Score. Quality Score is a measurement (0-10 with 10 being the best) of how relevant your keyword is in respect to a corresponding text ad and to a users search query.

Google’s Quality Score Factors

Google’s quality score algorithm is a function of 3 primary factors:

  1. Click Through Rate (CTR) - The percentage of clicks divided by ad impressions -This is the overwhelming majority of the QS algorithm.  One way for marketers to improve CTR is to write compelling ad copy.
  2. Relevance - The semantic relevance of the keywords purchased and grouped together in an adgroup, then the ad that represents the keyword in the auction.
  3. Landing Page – The keywords on the landing page must be relevant to the ad served.

Google Ad Rank Auction Example

Google Ad Rank

It is important to note that the size of the advertising budget does not automatically win in Google’s Ad auction, unlike traditional methods of advertising, such as newspaper or radio ads.  If four advertisers bid on the same keyword phrase that is queried on Google, you will notice above that Advertiser A has the highest Bid for the keyword phrase ($8) and a very low Quality Score (2), thus falls to position 3.  Advertiser B bid $3 LESS than Advertiser A, but has a quality score of 4 (2 times higher than advertiser A Quality Score) and the highest Ad Rank of all four advertisers, therefore, Advertiser B gains position 1.

Summary of Google’s Ad Rank Ecosystem

Google’s goal is to make 3 audiences happy:

  1. Users (searchers)
  2. Advertisers (purchasing keywords from Google)
  3. Google

In order to make Users happy, Google must match relevant ads to particular search queries. In order to make Advertisers happy, Google needs to match relevant ads to particular search queries so the advertiser can see a Return on Investment. As long as Users and Advertisers are happy, they will continue to search on Google and buy keywords on Google AdWords, thus making Google happy.

Google’s Chief Economist Hal Varian Demystifies Google Ad Rank

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