The Next Part of the Evolution in the Google AdWords Algorithm -- Beyond CTR * MAX BID

Age : 45 Joined : 08 Mar 2008 Posts : 1850

Sorry, but in the second stage the algorithm gets a bit more complicated and simple examples and calculations cannot be provided. Therefore, live with what we can communicate in written form.

If memory serves me correctly, between Oct 2004 and March 2005 the Google algorithm went through several "enhancements" -- All of which were not openly disclosed prior to or after the change -- Only the die-hard PPC analysts managed to detect and gather enough information to estimate what the actual changes were. So, for this phase, we will tell you what happened in a Q & A & R format (that's Question, Answer, Result).

Noticed First in late 2004
Question: Wait a minute.. I'm bidding on keyword [Mexia purple widget] (that's exact match) and my bid is $0.10 -- There is no way anybody else is bidding on this term, so why is my ad ranking never any better that 19th? AND, since nobody else is bidding on that carefully selected exact match keyword, why are all those ads showing ahead of me?

Answer: Google apparently decided that, even though you are the only bidder on a keyword, he would determine the topic your keyword related to and make you compete against other ads in that topic -- ads for topical keywords carrying a MUCH HIGHER MAX BID than you $0.10.

Result: You could no longer find "cheap" keywords that will drive any significant traffic to your site as a result of top positions in the ad rankings. Google makes more (significantly more) money from your "carefully selected" keyword where you THOUGHT you were the only bidder.

Noticed First in February 2005
Question: Darn... I keep raising my bids, but my ad positions (rankings) refuse to get better. What is the deal here?

Answer: Google changed the algorithm. It changed form [CTR * MAX BID] = Rank Score to something like this (nobody outside the Google engineers knows the real formula):
[MAX BID * KEYWORD CTR * (AD GROUP CTR or AD COPY AVERAGE CTRS or something to this effect) * POSSIBLE A CAMPAIGN WIDE CTR * POSSIBLY SOME CAMPAIGN or ACCOUNT AGE FACTOR] = RANK SCORE
YES, we know it is AT LEAST this complicated and utilizes these types of variables to determine rankings for ads. And, there is probably a few minor variables in the algorithm we have not yet discovered.

Result: Confusion! Controlling your ad positions just got VERY tough. If you make your BID HIGH ENOUGH, you can improve your position -- but, we are not talking small amounts here. We are talking raising bids of $0.10 to the neighborhood of $1.50. Plus, controlling or optimizing the CTR of an adgroup and campaign is a great deal harder than the doing the same for a single keyword. And YES... this probably also increased AdWords revenue.

FINALLY, The Current Evolutionary Change in the Google AdWords Algorithm
The latest change complicated things even more so try to stay with use here. So, for this phase, we will continue to describe what happened or changed in a Question, Answer, Result format.

Noticed First in Early July 2005
Question: Wait a minute.. My Google AdWords ad for my keyword has ranked in the top position for over a year and on Monday it's all of a sudden ranking 27th! I changed nothing and I'm still bidding an outrageous amount, so WHY AM I SEEING MY AD IN 27th position?
Answer: Google added something new to the algorithm called (for lack of an official name) a LOCALIZATION FACTOR. Now the ranking formula looks like this: [ MAX BID * KEYWORD CTR * (AD GROUP CTR or AD COPY AVERAGE CTRS or something to this effect) * POSSIBLE A CAMPAIGN WIDE CTR * POSSIBLY SOME CAMPAIGN OR ACCOUNT AGE FACTOR * (A LOCALIZATION FACTOR APPLIED DEPENDING ON WHERE THE SEARCH ORIGINATED)] = RANK SCORE
Result: Your ads now rank in different in different parts of the country (or world) depending on where the search for your keyword originated!