Google Increases Advertising Rates?

On Monday, Google announced changes to their AdWords quality score algorithm, the technology used to determine sponsored search engine rankings for each keyword. Google’s goal is to improve the quality of AdWords, but the enhancements they’ve introduced may come at a cost to advertisers.

The three main changes announced on Monday are as follows:

  1. The AdWords quality score for a keyword is now evaluated at the time of each search query. Google notes that landing page quality is “evaluated less frequently.”
  2. Google has abandoned the minimum cost-per-click (CPC). Because all keywords are evaluated at the time of each search query, they are all considered active.
  3. In lieu of the minimum CPC, AdWords now displays the cost for an ad to be placed on the first page of search results.

Why do advertisers think costs may rise?

Most advertisers are happy to see the first two changes above.  By allowing all keywords to remain active and more frequently measuring a keyword’s quality score, an advertiser may be able to gain incremental traffic from keywords that were previously banned from search results. More search engine impressions will always be welcomed by advertisers.

The third change has received a different response from AdWords clients. Many advertisers fear the transparency of costs introduced by the “first-page bid estimate” could lead to price wars on the AdWords battlegrounds. If advertisers frequently increase bids to reach first-page placement, the cost for top rankings will rise as advertisers outbid each other. The amount of the potential price increase will depend on the degree of value advertisers place on first-page rankings.

Being on the first page of search results drastically increases search volume for our top keywords, causing us to place a high value on top placement. First-page rankings are also important to us because better position results in higher click-through rates, which factors into the AdWords quality score for each keyword.

Certain situations will tempt us to increase keyword bids based on the first-page bid estimate, and if other advertisers are thinking the same thing, AdWords click prices may quickly increase. As we reported earlier, Yahoo will begin serving Google AdWords ads in their search results, which could cause a spike in costs across both search engines. It looks like paid search will soon become more expensive for advertisers, and we’re estimating a 4-7% spike in our costs.

We’ll keep you posted on our reaction to these changes.

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