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How Does the Google AdWords Auction Work?
PRIZED AUCTION ITEMS
IT ALL STARTS WITH A QUERY
When someone searches for something on Google, Google looks at the AdWords’s pool and determines whether there will be an auction.
WHAT GETS ENTERED INTO THESE AUCTIONS?
Advertisers identify keywords they want to bid on, how much they want to spend, and create groupings of these keywords that are paired with ads.
Google then enters the keyword from your account it deems most relevant into the auction with the maximum bid you’ve specified as well as the associated ad.
NOTE: You can only have one entry into any query auction from your account.
HOW DOES GOOGLE DETERMINE WHICH AD IS SHOWN WHERE?
Once you are entered into the auction, Google looks at two key factors to determine where your ad ranks: your maximum bid and your quality score.
AD RANK CPC QUALITY BID SCORE
The best combined CPC Bid x Quality Score gets the best position
OTHER ADWORDS FACTS
The Ad Auction & the Display Network
The ad auction works very similarly, but is triggered by “placements” or pages on Google AdSense where publishers make advertising space available for AdWords advertisers.
The core ranking components here are largely similar, with differences being:
Relevance is determined by placement rather than the query
Bids are set at the ad group level, not the keyword level.
You may also specify CPM bids (by impression) which then compete with both CPM bids and CPC bids.
This is the maximum bid you specify for your keyword
TOTAL GOOGLE EARNINGS
$32.2 BILLION in advertising revenue.
NOTE Keywords are not search queries! Specific keywords (such as “pet medicine”) may be entered into auctions for a wide range of search queries (such as “medicine for dogs” or “pet supplies”), depending on your match type.
This is a metric to determine how relevant and useful your ad is to the user (components are CTR relevance. and landing page).The higher your quality score,
Notice how Advertiser I can pay less for a higher position due to his high quality score.
HOW DOES GOOGLE DETERMINE WHAT YOU PAY?
YOUR THE AD RANK YOUR PRICE = OF THE PERSON I QUALITY + $0.01 BELOW YOU I SCORE
The Auction gets run billions of times each month. The results are such that
• Users find ads that are relevant to what they’re looking for
• Advertisers connect with potential customers at lowest possible prices
• Google rakes in billions of dollars in revenue
Alternative Bidding Methods
Google also allows bidding methods other than CPC such as CPM or CPA:
CPM Bids – If a CPM bid is entered into an auction with CPM bids and CPC bids, eCPM is used to determine bid (the effective cost per 1000 impressions for both the CPM bid and the CPC bid).
When you use Conversion Optimizer and bid to a CPA, Google is determining your max CPC bids for you based on historical conversion data, and is attempting to hit either the average or max CPC you’ve set.