Their announcement in full reads as follows:

When searching on Google, users appreciate results that are relevant and deliver a great experience after they click. In August, we announced trials in Brazil, Spanish-speaking Latin America, Spain, and Portugal¹ that increased the weight given to relevance and landing page quality in determining Quality Score and how ads are ranked on Google. The goal was to improve the user experience with search ads. Based on the results we’ve been seeing, we’re now rolling these changes out globally over the coming weeks.

As the changes roll out, some campaigns will see variation in keyword Quality Scores and typical ad position. Within a couple weeks, things should stabilize and we expect most campaigns will not see a significant change in overall performance.

Just like today, campaigns with better-performing ads for user queries will continue to see higher Quality Scores, lower average cost per click and higher position on results pages. The 1-10 Quality Score in the AdWords interface will continue to represent the general quality of your keyword when exactly matching a search on Google. Increases in bid and Quality Score will continue to increase Ad Rank, and the same basic approach to improving your results with AdWords applies.

This is interesting, as this is effectively the same as saying that they are reducing the role of the click through rate in the ranking algorithm. But the use of click through rate is critical to Google – this is what they use to maximise their revenue from Adwords.

By promoting adverts that are more likely to get clicks and demoting those less likely to get clicks, Google ensures that the adverts that appear in the top positions (with the highest cost per click) are the ones most likely to generate clicks, and that an advert with a lower click through rate has to effectively make up the loss of revenue for Google by bidding higher, in order to get the position.

This isn’t a criticism of Google at all – I believe that it’s generally in the user’s interest to see adverts that they are likely to click on – this is a strong indicator that the advert is relevant to the user. So by moving the focus of the algorithm from pre-click to post-click, Google are likely to cost themselves money. But does this really improve the user experience?

Certainly, if the keyword matches the search query, it’s an indication of a more diligently managed account – a campaign that utilises Exact Match extensively rather than relying on Broad Match requires more work. And more targeted landing pages can be achieved by effective keyword grouping – but does this mean that user gets a better experience?

To be honest, I’m not convinced. I doubt that it will make any discernible difference to users, but anything that encourages PPC account managers to manage their keyword lists effectively (or rewards those of us that do) can’t be a bad thing.

-CustardMite

These are questions that everyone that manages an Adwords account has asked at some point. So I decided to find out. As a large agency, we are in the position of having far more data to analyse than most people, and by manipulating this data, we’ve found some very clear and consistent trends, that have given us unique insights into what click through rate Google are looking for in order to consider you ‘relevant’, and how they take your position into account.

So here’s what I did. I pulled out the data for the last 30 days for every keyword, in every Ad Group, in every campaign, in every account that we manage. I stripped out any Phrase and Broad Match keywords (since QS is calculated on Exact Match), Google’s Search Partners data (since this is ignored in the calculation) and brand terms (which would skew the click through rate analysis significantly – more about this later).

I then looked at the average click through rate in each position from 1 – 8 (in increments of 0.1), for each keyword Quality Score. By graphing the results, it wasn’t hard to detect a pattern. Here’s the CTR’s by position for keywords with a QS of 10:

Note that I took the total impressions and clicks for each position, effectively weighting the CTR for each keyword by the number of impressions, so that low volume keywords didn’t have an exaggerated impact on the performance. You can also see why I removed brand names from the above analysis – the position 1 CTR would have been influenced excessively…

From the above graph, it’s possible to get some sense of what click through rate Google expects from a keyword in order to give it a QS of 10. And by fitting a curve through the data, it’s possible to get a reasonable indication of where you should be in order to pick up a Quality Score of 10:

Based on this line, it appears that Google expect the click through rate in any position to be about 65% of the next position up. So where position 1.0 has an average click through rate of 34%, position 2 has an average click through rate of 22.1%.

Whilst this line fits nicely through this data, what happens if you look at other Quality Scores? Will Google expect a similar drop-off in click through rate? If not, then this number is just a convenient fit for this data. Here’s the graph for Quality Scores of 9:

And 7:

And 6:

The same decay of 0.65 has been drawn on each, and in all cases, it appears to fit well. So this appears to be Google’s estimate of what ‘should’ happen to your click through rate every time you drop a position – you lose just over 1/3 of your clicks. Of course, this doesn’t really work once you drop below about 8^th, but it’s certainly a useful thing to know. Indeed, the line fits just as well with a Quality Score of 5, 4 or 3 as well.

Based on these fitted lines, you can estimate the following average click through rates by position, and how they are converted into Quality Scores:

Using this, you can potentially ‘health check’ your account. If you have a click through rate of 4.5% in position 4, you should have a Quality Score of around 7 or so. If you are getting less than the predicted Quality Score across the bulk of your keywords (excluding brand, on Google only, on Exact Match), then it’s a sign that your account has other issues, possibly with the landing page, keyword relevance or the overall account quality.

I tried to take this analysis to the next level, by calculating the predicted Quality Score for each keyword, based on its click through rate and average position. Unfortunately, whilst the fits are very good looking at large amounts of data, on a keyword-by-keyword basis, the results can be quite inaccurate, underlining the fact that advert relevance, landing page relevance and account quality also have a significant bearing.

One final point worth noting is that the overall figures for the Quality Score of 7 are a little misleading. Most keywords seem to be given a Quality Score of 7 initially, until Google calculates a value based on their performance. Because far more of our keywords get Quality Scores higher than 7 than get less than 7, the effect of new keywords on the ‘7’ performance is pushing up the click through rate significantly.

Realistically, none of this has any bearing on the way that you manage your account. Regardless of your click through rate, you should always be looking to improve it (though obviously not to the detriment of your conversion rate), and the Quality Scores that Google quotes in the data are only indicative – the true Quality Score figure is probably much more precise, and keywords that appear to have the same Quality Score could actually have quite different values (6.6 and 7.4 could both round to 7).

But in terms of offering insight into what may happen to your traffic volumes if your position were to change, it’s very interesting. If one of the advertisers above you were to drop out, you could potentially be looking at a 50% uplift in clicks. If you’ve got a restrictive budget, this could cause problems. Similarly, a new competitor appearing above you could cost you 1/3 of your clicks…

Even experienced users of Adwords, such as agencies, make mistakes, and can cost their clients money and ultimately cost themselves accounts. It’s very rare that I’ve accessed an account, whether managed by an agency or by an individual, where mistakes aren’t being made.

But fear not! Help is at hand. Perhaps the most easy-to-understand, but powerful guide ever written on how to advertise on Adwords is now being serialised on the Epiphany Solutions Blog for the first time.

This is the first part of that serialisation. It gives an overview of what Adwords is, where it is and isn’t useful, and the advantages and disadvantages of PPC against SEO. Future parts will look at each aspect of an Adwords account, and show what you should do in order to deliver amazing results, and perhaps more importantly, why the account should be set up and managed in this way.

Why Advertise Using Paid Search?

It’s a fair question. The days of PPC being a goldmine, with undiscovered pots of gold (also known as searches with few or no adverts) have gone. It’s one of the competitive – if not the most competitive – forms of advertising that there are, and you are going head to head with your rivals.

It’s definitely not for the faint-hearted. Your advert is likely to be in the middle of a bunch of competing adverts, all vying for the searcher’s attention. Even if you get the searcher to your website, they probably won’t do what you want – many sites see only one in every hundred actually making a purchase. Is it worth paying for the 99 that don’t?

It’s interesting, then, that a properly managed account is virtually guaranteed to make money.

No seriously, I mean it. Do the sums. Assuming that the visitors to your site have a value (i.e. you make money from at least some of them), then as long as you bid less than the visitor is worth, you can’t lose money.

For example, suppose 2.5% of your visitors buy something, the average order value is £100, and 25% of the order value contributes to profit. Each sale is worth £25 to you, and so each click is worth £0.625 to you (since every 40 clicks generate one sale, which is worth £25 to you).

So if you only pay £0.50, you will make money. Of course, if 30 other advertisers are all making £5 from each click, they are all going to outbid you, pushing your advert down into the nether regions, and you’ll get very few clicks – so you won’t make much money.

Optimising Your PPC Account

This simple example highlights two of the themes that will keep repeating throughout this whole guide.

Firstly, you should be basing the amount that you bid for a keyword on the amount that the click is worth to you. This is pretty obvious if you look at the example above. But there are still many advertisers out there that view success as achieving the highest positions that they can for their budget!

Secondly, since the amount that you bid is limited by the value of the click, you should be doing everything you can to maximise this. The simplest way to do this is to maximise your conversion rate. Every click that doesn’t convert is wasted money, every click that does convert is very profitable.

There is one more critical aspect to successful account management. Adwords is an auction – if you bid more, you appear higher. However, it is not a fair auction. Google multiply your bid by your Quality Score in order to determine your advert’s position, and the amount that you actually pay per click for your keyword.

Quality Score is Google’s measure of how relevant your advert is. Google want to make sure that their adverts are as relevant to users as possible for two reasons. Firstly, if their search results aren’t high quality, users will use another search engine. Secondly, if their search results aren’t high quality, nobody clicks on them, and Google don’t make any money. And Google likes making money.

Quality Score is covered in a lot of detail later on, as it is really quite important. But for now, suffice to say that every change that you make to your account should serve one or more of the following purposes:

• Increase the volume of clicks that you are generating
• Increase the profitability of a click, either by
  • Increasing the value of the click, or
  • Reducing the cost of the click

Often these two objectives directly conflict. For example, bidding more increases your clicks, but results in each click being less profitable. A new advert may improve your click through rate, but by driving less qualified traffic. New keywords may cause a similar trade-off.

Each individual section will look at this trade-off, and how to make the right decisions, and every recommendation made will be based on improving one or both of these objectives.

Isn’t It Cheaper And Easier To Stick To SEO?

Well – it can be, and you should probably do this regardless of whether or not you do PPC, but optimising your website to appear high in the natural, ‘free’ results takes a lot of time, work and money. In the long run, SEO generally pays off, but you’ll be spending a lot of money for a long time before you get results on popular search terms. And if your competitors are also doing SEO, then you may never catch up.

Pay Per Click gives you immediate results, and unlike other forms of online (and offline) advertising, you know for certain that you’ll get results. Instead of paying for an advert that people see, who then may not even visit your site/store, with PPC you pay only when somebody walks through the door. As long as there’s a good chance of that person buying something, then there’s a clear link between what you’re paying and how much you sell.

Also, you have total control over how much you pay for your visitors, and who visits your site. If something isn’t working, you can stop it immediately, and if something’s very successful, you can do more of it.

PPC can also support your SEO strategy, showing you which keywords convert, which landing pages you should be trying to drive visitors to, and which messages appeal to the searchers. And many studies have shown that websites with both natural and paid search listings get more traffic than they would expect to achieve from the two individually – the whole can be greater than the sum of its parts.

Hope you enjoyed Part One of Google AdWords Expert — keep your eyes peeled each Friday when I’ll post the next part.

In the meantime, please feel free to comment or leave questions.

Once upon a Monday dreary, while I entered a search query
Into Google, haven of quaint volumes of forgotten lore
While I nodded, nearly napping, I considered words, which tapping
Brought forth ads attention trapping, trapping my attention’s core
‘Tis a trickster,’ this I muttered, ‘trapping my attention’s core
Only this, and nothing more.’

Ah, distinctly I remember, it was July or December,
When the advert’s dying ember printed on my memory store
Eagerly, I clicked to follow, seeking to receive tomorrow
Copies of ‘The Mask Of Zorro’, a movie that I adore,
For the rare and radiant maiden, Catherine – she whom I adore
Ever since she first I saw

As I passed onto the webpage, suddenly I felt a great rage,
Anger’s dagger thrust in me, through my heart it brutally tore
No delivery tomorrow, I discovered to my sorrow,
The parcel would later follow, follow to my home’s front door
‘What of claims you made,’ I cried out, ‘to deliver to my door
The next day, if not before?’

Presently, my soul grew stronger, turning lassitude to anger,
‘Sir,’ said I, ‘Or madam. Your advert gave me rancour.
I shall not this film be buying, your false promise left me sighing
Even a part of me was dying, all for Cath whom I adore!
She who starred in America’s Sweethearts, raven beauty I adore
Now I shall see her no more!’

Deep into my dark soul peering, I thought of adverts, that endearing
Led consumers gladly cheering, to that company’s distant shore
Beating Adwords could be easy, to write adverts that, though cheesy
Make promises to tease me, tease me to their website store?
This I decided to trial then, increase clicks to my own store
With untrue claims, base and poor.

Back to my computer turning, all my soul within me burning,
Again I started writing adverts, with more vigour than before
‘Surely,’ said I, ‘this will work well, though visitors think it hell,
Nonetheless with it I shall sell, this ad shall be my cat’s paw
Tricking customers with untruths, this ad shall be my cat’s paw
Empty wind, and nothing more’

As my adverts became alive, I doubted not that they would thrive,
My cost per sale would start to dive, dive below its previous floor,
Not the least doubt pierced my soul yet, my expectations would be met,
I detected not the least threat, my campaign would start to soar.
For my advert was compelling – hence my sales would no doubt soar
But my sales remained quite poor.

As I watched with mounting fear, my ad began to disappear
Falling down the SERPs descending, past competitors it tore.
Turning to my bust of Larry, on my knees I begged ‘don’t tarry –
Tell me why this pain I carry – tell me now, I do implore!’
Vainly waiting for an answer to the question I implore
Quoth Larry ‘Quality Score’.

Much I marvelled this ungainly statue to hear discourse plainly
Though its answer little meaning – little relevancy bore
Nothing further then he uttered, even though my mind was cluttered
Even yet I quietly muttered, ‘Larry, your thoughts I’d explore –
What is this thing that you speak of – something that I must explore.
What is this Quality Score?’

Larry spoke, unlike a raven – if one did enter my haven
He would not offer advice far beyond a raucous caw.
‘If you want your adverts high, there is one thing left to try –
Keep your relevancy high – lest your ads remain as poor’
You who sought to game the system, have been penalised as poor
Thus repair your Quality Score’

‘Wretch’, cried Larry, ‘Don’t be evil, lest you turn into a devil
Adwords must be used for good, so put the product at the core
Don’t let greed make you dishonest, deliver all that you have promised
Or your adverts will be dismissed – this has been your fatal flaw
Make good on all claims that you make, don’t let greed become your flaw’
This he said, and nothing more

‘Thanks Larry’ I said, then turning to my PC, once more burning
With the need to do no evil, wrote ads whose motive was pure
So it was I typed with relish, telling truths I’d not embellished,
Lest my ads fell to that hellish place they’d seen the day before
Clicks I gained thus were not worthless, worthless like they’d been before
Thus I saw conversions soar

The bust of Larry, never flitting, still is sitting, still is sitting
On my desk – it still reminds me of the lessons learned before
So it is I sit here writing, cautioning against inviting
new techniques that sound exciting but harm your Quality Score
Relevancy is the answer; don’t risk your Quality Score
I will do so Never More.

It appears that the percentage of clicks going on Paid Search is falling, which is potentially a misleading statistic (see my blog on Google and the 80:20 ratio). But they make another, very interesting point.  They indicate that the biggest fall is on brand-name keywords, and quote Andy Beal at Marketing Pilgrim, who says:
“Is that likely due to a reduction in spend, or Orbitz et al figuring out that they really don’t need to spend so much on paid advertising–considering they’re #1 in the organic results?”

Leaving aside the fact that, in the UK at least, Orbitz are still brand-bidding, this is quite an interesting trend, if true.

The question of whether to bid on your brand name or not has been the subject of many blogs in the industry over the years, but most people are in agreement that you should certainly at least consider bidding on your name.

Back in 2006, Scott Woodard (also at Marketing Pilgrim) recommended bidding on alternative spellings and  mis-spellings of your name, and even slogans: http://www.marketingpilgrim.com/2006/12/9-cost-effective-ppc-branding-strategies.html

But the obvious argument that you get from clients is that if they are appearing top for their brand name, and people are looking for them by name, they were going to get the traffic anyway. There is certainly some truth in this, as a large percentage of the clicks on the PPC advert would cannibalise the natural clicks you were going to get anyway. So why bother?

Ian Lurie at Conversation Marketing, and Dave Davis at Redfly Marketing both make good arguments in favour of brand bidding: http://www.conversationmarketing.com/2008/03/defend_yourself_bid_on_your_br.htm
http://www.redflymarketing.com/blog/5-reasons-you-should-be-bidding-on-your-company-name/
To summarise, these are the critical benefits:
1) The traffic’s cheap. You’ll get a big advantage on your Quality Score, and your clickthrough rate will be high (giving you another QS boost). So in most cases, you’ll only have to pay pence to appear for your brand name. And this spend will often represent only a very small percentage of your advertising spend.
2) Other people can bid on your brand name. There are no rules against it anymore, and if you don’t bid on your brand name, there’s a decent chance that one of your competitors will appear at the top of the search results when somebody is looking for you. It’s like driving past Sainsburys and Asda to get to Tesco – it’s inevitable that you’ll lose some customers, it’s just a question of how many…
3) Natural Search results are in a constant state of flux. It’s quite possible that your website won’t be top for your brand name all of the time, particularly if it’s quite a common name, or consists of an English phrase. This is particularly an issue if you’re a relatively small company, and your website doesn’t have much age or a lot of links to it.
4) Controlling Your Message. You can control exactly what people see when they search for you. You can show your latest promotion, and perhaps more importantly, land them on a page of your choice.
5) You may not rank that well for misspellings of your name. Not everyone knows how to spell your brand name. We used to have an account for somebody who sold Wedgwood products, but I found that more people spelled it Wedgewood than were getting the name right.

From this, it sounds like a no-brainer. But it may not be quite that straightforward. There are a number of questions you should ask before making a decision.
1) What’s it going to cost? We’ve got a client who pays nearly £3 per click to bid on their brand name, despite getting clickthrough rates of 20% – 40%. The reason for this, aside from the high value of the traffic, is the fact that their name is also a common phrase that people search for.
2) Is anyone else bidding on your brand name? If you are a new website, or a relatively small player in the market, there’s a good chance that they aren’t. In which case, if you are top of the search results, you’ll lose very little traffic, if any.

Whether you decide to bid on your name or not, you’ll certainly want to make sure that your affiliates aren’t allowed to bid on your brand. This is a fairly standard clause in affiliate contracts, but there are plenty of unscrupulous affiliates out there who will ‘accidentally’ bid on your brand…

To come back to the original point, it appears that more and more advertisers are stopping their brand-bidding. Why is this?

A few possibilities spring to mind. Firstly, it’s possible that businesses are dropping their PPC campaigns completely. This would certainly fit with the other results in the E-Consultancy report, but it doesn’t really tally with results that I’ve been seeing recently. With a few exceptions, competition appears as high as ever during this recession.

In the past, businesses have often cut their marketing budgets when times were hard – something that has always made little sense to business analysts. Based entirely on my experiences, it appears that this just doesn’t seem to be true this time around.

Another possibility is the effect of competitor brand bidding on your Quality Score. If you’re a small advertiser, bidding on keywords with very high traffic volumes, and very low clickthrough rates, can have a very serious impact on your Account Quality Score, undermining every other keyword in your campaign, for very little reward. On many of my accounts, I’ve removed competitor names, in order to improve the overall account quality.

If this is a common conclusion, and fewer people are bidding on competitor terms, perhaps the argument for defensive bidding is lessened. But I doubt that this is that commonplace – there are very few people out there worrying about their Account Quality Score, perhaps because Google don’t seem to like talking about it…

So, should you bid on your brand name?

On this, I tend to agree with Anil Batra: http://webanalysis.blogspot.com/2008/01/should-you-be-paying-for-clicks-on-your_15.html. Testing is critical if the spend on your brand name is going to be a significant amount of money. Work out how much traffic your brand name drives from natural search only, then add PPC and see to what extent it increases, and at what cost.

This is really the only way to be certain, but if you do decide to bid on your brand name, there is one thing you must do – split it out from the rest of the campaign, at least in the reporting. Typically, the performance of your brand name will be much better than other keywords, and combining them to analyse the performance of your account will make the performance look better than it really is.

For example, suppose that your breakeven cost per conversion is £20. You get a report from your Agency reporting 100 conversions at £15 each (total spend £1500). You’ve made £500, so you’re happy.

But you ask them to break out the brand name, and they show you that your brand name generated 50 conversions at a cost of £2 each, and the other keywords generated 50 conversions at £28 each.

Suddenly things aren’t looking so good. You’re clearly losing money on the rest of your account, but it’s being disguised if the data isn’t being separated out. A good agency will generally break your performance down into Adgroups and Campaigns in your reports, but there are a few out there who don’t…

In summary, I’d say that bidding on your brand name is almost always a good idea, so if you aren’t, I’d definitely test it.

It went live on our accounts yesterday (16th September), and after poking around a bit, I saw no real changes in the performance of our campaigns. We haven’t changed our bids, our competitors haven’t, and any changes to the Quality Score have been small. So, everything looks fine…

I ran a quick report this morning, and saw that the average positions, and average cost-per-clicks were pretty much the same as they were before the update. Nothing to worry about, then…

Well, actually, yes there is. I’m very concerned (hence all the sentences that end with an ellipsis)…

There is only room on the first page of the search results for 8-10 adverts, and most keywords have more adverts than that now. But what Google are now telling advertisers (particularly those advertising in 11th – 13th) is that for a few pence more, they can appear on page one, and get a lot more traffic. Suppose that your average position is 11th, and you are paying £0.50 per click. Google informs you that if you pay £0.55 per click, you’ll be getting a lot more traffic, as you’ll be on page one.

There’s a good chance that many advertisers will increase their bids. Only problem is, there’s still only 8-10 adverts on the first page of the search results, so some adverts will fall off the first page. They’ll see their traffic volumes fall away, and be left with the same dilemma. Stay on page two, or increase their bids to £0.60.

The result is that over time, the cost per click will gradually increase, unless advertisers ‘do the sums’ and work out their optimum bids and stick to them. In effect Google is encouraging sensible advertisers to over-bid, and become ‘numpties’ – see my numpty blog for more details on this: http://www.adwordsprofessional.com/102000-ppc-how-the-numpties-are-ruining-it-for-everyone.html.

In the long run, people will either ignore the new statistic (in which case Google have replaced a useful statistic with a worthless one) or they’ll increase their bids accordingly.

Bad news for them, and bad news for everyone else as well – the cost per click is only going to go up for everyone, wherever they appear in the search results.

At the moment, the effect should be limited, as the number is quite well-hidden. But if the number appears more prominently in the future, it’s going to hurt…

The end of the Universe? Ok – that may be an exaggeration, but for many Adwords advertisers, it may be the end of the road. And Google? They’ll make more money from having less advertisers making higher bids, without really changing their system.