September 16, 2008, 12:00 AM

What changes to Google AdWords mean for pay-per-click advertisers

Google announced this week changes in how it determines which ads appear on search results pages and in what order. The changes could benefit newer advertisers, says one search expert. But pay-per-click ad prices may go up with the rules, says another.

Google began implementing this week previously announced changes in how it determines the Quality Score for an ad, a process that determines which ads appear on search results pages and in what order. The changes could benefit newer advertisers, says one search expert. But pay-per-click ad prices may go up as a result of the new rules, says another.

One change is to rank each ad at the moment of the query, instead of based on historical data. Google says this will make ads more relevant to the searcher because the search engine will be able to take into account a variety of factors, such as which web site the individual is searching on and where they live. Google gives an example of an advertiser whose ads are more attractive to U.S. than Canadian consumers; the company’s ads will be positioned differently based on the location of the person searching.

That change also will affect bidding on keywords that involve advertisers who only advertise at certain times of the day, says David Szetela, CEO of search agency Clix Marketing. When those advertisers are not bidding, advertisers who bid on a keyword continuously should get a lower price or a higher position because Google’s real-time analysis will show there is less competition at that moment. “Google will calculate the best possible position and price given the momentary data they have, rather than day before or week before data,” Szetela says.

With the second change Google will no longer mark certain keywords as “inactive for search,” meaning it would not place the advertiser’s ad on a page of results for that keyword because Google does not consider the ad copy or landing page relevant. The previous policy was aimed at preventing unscrupulous advertisers from getting their ads on search results pages, but it often knocked out keywords from advertisers whose ad copy and landing pages were in fact relevant, Szetela says.

After months of trying to get an explanation from Google for why certain advertisers’ keywords were blocked, Szetela learned that Google also considered the overall record of the advertiser in determining Quality Score, and that tended to hurt newer advertisers. “They basically gave new accounts a bad score until the account earned through its performance a better Quality Score as a whole,” he says. This change should help such advertisers get better positions, he says.

Szetela was also enthusiastic about the third change, in which Google will provide an estimate of what an advertiser would have to bid on a particular keyword to get onto the coveted first page of Google search results. Knowing that “is golden,” Szetela says. Previously, Google set a minimum bid for a keyword, but did not estimate what it would cost to appear on the first page.

That change is both good and bad news for advertisers, says Mark Simon, vice president of industry relations at search marketing firm Didit. “With the transparency that everyone has been urging Google to display, marketers will now be able to see what the required bid needs to be to get first page placement,” Simon says. “Of course, that will immediately create a more competitive marketplace based on advertisers pushing that first page bid.” He says the Google changes also will require marketers to be more diligent about making their ad copy and landing pages relevant to all the keywords they bid on.

The Quality Score changes could result in more ads appearing on Google search pages and more clicks on those ads, says Imran Khan, an equity analyst with J.P. Morgan Securities Inc. He says improving the relevance of ads should generate more clicks while removing keywords from the inactive list could lead to Google placing more ads on search pages. And providing advertisers with a first-page bid price, he says, is likely to raise ad prices as advertisers raise their bids to gain the best positions.

Google says it began implementing the Quality Score changes this week for a few advertisers as a test, and will inform advertisers before rolling out the new rules for everyone.

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