Google recently announced that, beginning in early May, two changes are being rolled out to Ad Rank:
- Minimum Ad Ranks to appear on the first page or at the top of the page can be calculated based on the meaning of the query.
- Depending on query meaning, bids may be weighted more heavily in determining Ad Rank.
The first change appears to be focused on better incorporating the context of a query into determining the required Ad Rank, and thus bid needed,to receive an ad impressions at the top of the page or on the first page of results. The second point indicates that ad quality factors such as expected click-through rate might be weighed less heavily in determining an advertiser’s Ad Rank depending on query meaning.
Google has said that these changes are expected to roll out through the end of May. However, taking a look at top-of-page and first-page bid minimums as well as CPC trends, it’s clear that the effects of this change are already starting to take form.
Non-Brand Minimum Bid Estimates Up, Brand Down
For the median Merkle Google searchadvertiser, non-brand first-page minimum bid estimates began increasing at the same time that brand first page minimums began decreasing in early May. While first-page minimum bids can fluctuate greatly for any given keyword, viewed across an entire program they are generally a good indicator of when significant changes are occurring in the Google auction, either announced or unannounced.
We find similar trends with regards to top-of-page minimum bid estimates, with brand keyword minimums going down and non-brand minimums going up.
With these changes, we might expect a corresponding increase in CPC for non-brand keywords and a decrease for brand terms. However, we find just half of that is true.
CPC Trending Down for Brand and Non-Brand Keywords
Since the trends in first-page and top-of-page minimums began taking hold, brand CPC has declined more significantly Y/Y than what was observed between March and May.
With the vast majority of brand clicks occurring at the top of the page, top-of-page minimum bids are much more important than first-page minimums in determining CPC for most advertisers.
While Ad Rank thresholds are increasing for non-brand keywords, CPC has not gone up, and Y/Y change has recently been relatively low within the range of what we’ve seen since the beginning of March.
With so few days since the change, it’s totally possible that the effects of these updates aren’t fully accounted for in these figures. However, there are two points to make on this front.
- For non-brand keywords, most advertisers are shooting for specific return on ad spend goal of some type. This means that if the cost of traffic were to go up as a result of these changes without driving any more value for advertisers, some share of keyword bids would have to necessarily come down in order to maintain the same return on investment observed prior to the update. As such, aggregate non-brand CPC wouldn’t necessarily go up with the increases in Ad Rank thresholds that we’ve seen.
- Brand keywords are often not held to strict return on ad spend goals. This is usually because these terms convert at a very strong rate, and brands also want to have an ad present in order to get as much brand traffic as possible and control messaging. As such, advertisers are more likely to eat any increases in CPC for brand terms, to a point. Google can still cross the line, as evidenced by steep increases in Google brand CPC in Q2 2015 resulting in advertisers taking active measures to mitigate the impact on spend.
Additionally, Google’s move to update both how Ad Rank thresholds and Ad Rank for specific queries are calculated makes it difficult to formulate expectations for how these updates will impact performance. That said, announcing that bids will be more heavily weighted in some auctions sure sounds like a change that will put upward pressure on CPCs by not factoring in quality score advantages as much.
Looking at how traffic breaks down by page location, there’s been no recent change in how many clicks come from the top of the page on any device type across Merkle advertisers. Thus, there’s no evidence just yet that these updates are impacting the likelihood of ads showing in different page locations.
Conclusion
We’re still in the very early goings of a change that Google has given little information on, but it does appear that auctions for both brand and non-brand keywords are being impacted by the recent adjustments to Ad Rank calculation.
For the vast majority of keywords, there is a gap between the max bid set for a keyword and the corresponding CPC. If Google is making bids more important for some queries, it stands to reason that they might be looking to close that gap.
However, any increases in the price paid per click would necessarily have to result in greater sales/orders/conversions, or else advertisers will be forced to reduce bids to some extent in order to maintain return on ad spend.
On the brand side, it’s nice to see that advertisers might pay less under the new Ad Rank calculations. There have been rumblings across the industry of individual advertisers seeing recent jumps in brand CPC, but that doesn’t appear to be the case for most brands.
As always, stay tuned to our blog for more analysis on this and other changes happening on Google.
