Google have announced a change to how they rank the top placement adverts. Adverts outside the top positions work by a Ad rank = CPC bid X Quality Score forumla, while historically the top position formular has always been a little different, instead using actual CPC (rather than your bid price) x Quality Score.

Why was this method used originally?

It meant there was more weight on the quality of your advert within the formula which took into account the quality around you to achieve those top positions. Googles old guidelines can still be found and explain -

For the top positions above Google search results, we use a slightly different formula. First, only ads that exceed a certain Quality Score threshold may appear in these positions. Second, for ads that do surpass this Quality Score threshold, we use the actual CPC rather than the maximum CPC when determining their ranking in the top spots. This ensures that Quality Score plays an even more important role in determining the ads that show above the search results.

So why the change of tune now?

Actual CPC is determined, in part, by the bidding behavior of the advertisers below you. This means that your ad’s chance of being promoted to a top spot could be constrained by a factor you cannot influence. By considering your ad’s maximum CPC, a value you set, you will have more control over achieving top ad placement.

The actual CPC you pay, is directly affected by the competitor below you true. The actual cost per click calculation is determined by the ad rank of the advertiser directly below you, divided by your own Quality Score + 1p.

So with the old forumla, your ad rank was directly affected by the competition. If your competitor (below you) ad rank was poor, it would directly affect your actual CPC (lower it) and hence your ad rank. But the main thing to remember is, this didn’t matter. You are all in the same bidding landscape once you have reached that quality threshold. It was same normalised, averaged landscape that looked at those in direct competition.

So what difference will the bid CPC forumla bring to top positions?

The bid will no longer be a reflection of the quality of competition around you to the same extent. Quite simply, it will make it easier to get into the top positions for those willing to pay a higher price. The top placement ad rank system will no longer take into account the quality of the bid landscape around you and normalise it in relation to each other.

Will these adverts actually be of better quality as Google have said?

“In addition to increasing control for advertisers, the improved formula increases the quality of our top ads for users. This is due to more high quality ads becoming eligible for top placement, thereby allowing our system to choose from a larger pool of high quality ads to show our users.”

Well, no. The system makes it easier to get into the top placements with more bearing on bid price than on quality in comparison to competition. Have Google upped the quality threshold to achieve the top positions to counteract this as SEL suggest? Thats hard to say. But what Google have done, is add another minimum bid into the equation. Aswell as having a minimum bid to be active for search, there is now also a minimum price for the top spots according to the Google FAQ.

Your actual CPC will continue to be determined by the auction, but subject to a minimum price for top spots. The minimum price is based on the quality of your ad and is the minimum amount required for your ad to achieve top placement above Google search results. As always, the higher your ad’s quality, the less you will pay. And you will never be charged more than your maximum CPC bid.

It seems Google have switched up the revenue dial.

Check out an even more cynical post over at Graywolf.