Now you know what an advertising network is and where Google Ads are published, we’re going to see what happens when there’s not enough advertising space for all the advertisers who want to market their products and services.
When this happens, the role of the advertising network is to rank the advertisers to determine which ads will actually be displayed.
We will cover the following questions in this chapter:
How does Google decide which ads to display?
Under what circumstances?
And how much will this cost the advertiser?
As you can imagine, there are no human beings behind the scenes ranking each ad in real time.
Google uses an algorithm called Ad Rank, which is very similar to an auction bidding system.
Define Your Bid
To illustrate this auction system, we’re going to take a realistic example.
Imagine an internet user who is searching for the term cheap sneakers in a search engine.
There are four advertisers competing to display their ad to the internet user.
In your opinion, which advertiser would win the advertising space if it were a traditional auction scenario?
… 🤔
Easy! The advertiser who bids the highest amount will be able to display their ad at the top of the search engine results.
Okay, well let’s take a closer look at this auction:
Our first advertiser bids $0.95.
The second bids $0.80.
The third bids $1.25.
The fourth bids $1.00.
In a traditional auction, it would be the third advertiser who would win the advertising space with their bid of $1.25.
But Google isn't concerned with always rewarding the highest bidder.
Check the Quality Score
By displaying ads on its own products and those of its partners, you could argue that Google is negatively affecting user experience. Not everyone appreciates seeing ads while they’re surfing the web.
Google wants to ensure that the ads displayed are relevant, So they have included another component to its auction system to minimize negative impact on the searcher/ internet user.
This component is the quality.
In other words, Google Ads assigns a quality score to all ads that are published on its two networks.
Google’s algorithm considers three criteria when calculating the quality score:
Ad relevance
Expected impact of extensions and other ad formats
Landing page experience
Let’s now take a look at these three criteria in further depth.
Ad relevance is calculated based on how well the keywords used in the ad, or linked to the ad, match the keywords used by the internet user in their search.
Google will look at your ad extensions for the relevancy, clickthrough rate (CTR), and overall experience with the ad.
If you’re not familiar with Google Ads or digital marketing, it’s perfectly normal that you've never heard of CTR. It stands for clickthrough rate.
In other words, the algorithm estimates the number of people who will click on your ad, which is a form of quality control.
The more clicks there are on your ad when it’s displayed, the higher Google’s will estimate its quality.
And finally, Google's algorithm looks at landing page experience.
In other words, your ads will direct internet users to a particular page on your website, also known as a landing page, and Google will scan this page to determine how relevant it is in relation to the search request entered by the user, your ads, and the keywords you’re targeting.
The words, headings, and descriptions used on this page will be taken into account. Page speed and construction are also considered.
By multiplying the auction bid by the quality score, Google can determine an initial provisional advertiser ranking. But to determine which advertiser will actually appear in first, second, or third position, Google has added yet another component: the expected impact from ad extensions and formats.
Add the Impact of the Extensions
When you create an ad, you have to create headlines, descriptions, and sometimes even images and other elements, depending on which network you're using.
You can also add additional features to ads to give more information to the internet user.
These additional features are known as ad extensions.
There are many different ad extensions and we’ll come back to them in the second part of this course.
But how does this relate to the ad ranking?
Well, ad extensions also come into play in the Ad Rank formula to determine which ads will get the highest ranking.
Let’s see how this applies to our cheap sneakers example.
Understand Ad Ranking
As we’ve seen above, in a traditional auction, the result would have been obvious.
The third advertiser’s bid of $1.25 would have definitely won the auction.
But let’s now see who would win the auction and how the ads would be ranked if we consider the factors that Google Ads takes into account and the Ad Rank formula that we’ve talked about.
You say formula, but I haven’t seen any mathematical symbols yet on this course! How is Ad Rank actually calculated?
It’s not complicated, as you’ll see.
Ad Rank = (Bid x Quality score) + Ad extensions impact
Our third advertiser still has the highest bid, but as we can see in the below table, their quality score is low.
Perhaps the ads don’t have relevant keywords.
Perhaps the landing page isn't great, or maybe Google Ads doesn’t think that many people will click on these ads.
These ads also don’t seem to have any extensions. 🤔
In other words, any positive impact of the ad extensions won’t be able to improve the low quality score.
While the third advertiser has placed the highest bid, this doesn’t necessarily mean they’ll achieve the highest ranking.
On the contrary, the fourth advertiser bid just $1, but has a much higher quality score.
They’ve also scored very well for their ad extensions.
It’s highly likely that this advertiser will win the auction.
OK, so let’s say that the fourth advertiser has won the auction and their ad has the highest ranking. Then an internet user clicks on the link, so how much will the advertiser actually pay?
This is a really good question.
At first glance, we might assume that the fourth advertiser will pay $1, as that’s what they bid.
But actually, Google Ads has a unique feature: the advertiser only has to pay enough to beat the advertiser ranked in second place.
In other words, the fourth advertiser in our example won’t pay $1, but only 96 cents, which is one cent more than their closest competitor.
Let’s Recap!
Google Ads uses a formula known as Ad Rank to determine which advertiser will be able to display their ad and where it'll be placed in the search results.
The quality score is based on three criteria: ad relevance, expected clickthrough rate, and landing page experience.
Ad extensions (additional features for ads) are also taken into account when calculating ad ranking.
Using this formula ((Bid x Quality score) + Ad extensions impact) means that it won’t necessarily be the advertiser with the highest budget that wins the auction and the advertising space in question.
Now you know what Google Ads is and how its bidding system works, you have what you need to launch your first campaign.
Meet me in the next chapter to kick off our adventure!
