What is an Ad Auction? What are the Principles?

When you perform a Google search, it conducts an auction process between advertisers’ bids to decide which Google Ads to show and in what order. This is known as an advertising auction. You might think that selling the top spots to the highest bidders would be the best solution at first, but that’s not how Goole makes money.

If everyone who entered the bid could get to the top, Google’s quality would be at risk of declining. In the long run, this could lead to businesses or individuals not wanting to advertise on Google. The ad auction therefore operates on a system that balances both Google’s financial interests and the interests of the advertiser.

Advertisers want their ads to be shown to relevant people so that they can get clicks, i.e. conversions, from those users. Users likewise want to see ads that are relevant to what they are looking for. Ultimately, Google wants both advertisers and searchers to have a good and positive experience so that they continue to use Google’s services.

How Does Google Ad Auction Work?

Advertisers tell Google the maximum amount they are willing to pay for a click and the amount they pay is then visible in the form of an ad auction until the next highest bid comes in.

However, as mentioned above, the highest bid alone is not enough. In addition, a multiplier called quality score is also included in the calculation.

What is a Quality Score?

When advertising using Google Ads, Google gives each of your keywords a Quality Score between 1-10 (10 being the best). The main components in determining the Quality Score are:

Keyword relevance
Click-through rate (CTR)
Relevance and quality of the landing page

The most important of these components is the CTR. This is because Google considers a click an ad receives as a vote in its favor. By allowing users to vote with their clicks, Google is using millions of people to decide which ads are best for each search query.

Relevance is the second largest component of the quality score. Google takes into account the relevance of the keyword to both the ad and the search query. This helps to ensure that only useful ads are shown to searchers. It also prevents advertisers from getting to the top for a search that is not related to their product or service.

The third component of the quality score is the quality and relevance of the landing page. An ad is only useful to searchers if it takes them to a landing page where they can find the information they are looking for.

In addition to being relevant, the landing page should load quickly, be easy to navigate and work well on mobile devices. It should also have a clear privacy policy.

How Does Quality Score Affect Ad Auction?

An advertiser’s position in search results is determined by an algorithm called Ad Ranks, not by their bids. The simple formula that can be used for Ad Ranking is as follows;

Quality Score x Maximum Bid = Ad Rank
Three additional factors are also taken into account these days:
Ad Rank thresholds – these are the minimum thresholds an ad must achieve to be shown in a certain position in the results.
The content of the call – e.g. time of day, caller location, device type, etc.
The effectiveness of your ad extensions
This is why bidding is important, but not the only thing that determines which position an advertiser will take.

Conclusion Worth Focusing on Quality

A successful Google advertiser should take the time to optimize their campaigns on a weekly and monthly basis. Remember that by doing so you can improve your quality scores! Google, of course, doesn’t share account intricacies with us, but what we’ve explained so far has a lot of influence on quality scores.