If you don’t understand the Google Ads Auction System, you’re missing out on a vital component of digital marketing.
About 80% of businesses rely on Google Ads for their pay-per-click (PPC) campaigns. This isn’t surprising, given that Google holds 83.49% of the search engine market worldwide.
The auction system is the engine behind this advertising powerhouse, determining how ads are displayed and the costs involved.
So, knowing how this system works is crucial for anyone who wants to leverage Google’s expansive reach. But how do you do that?
In this blog, we’ll discuss:
What Is Google Ads’ Auction System?
What Are Google AdWords?
5 Key Components of the Google Adwords Auction System
The Google Ads Network
4 Bidding Strategies and Auction Insights
3 Factors Affecting Your Auction Performance
What’s Next for Google Ads Auction System
What Is Google Ads’ Auction System?
You can think of the Google Ads (formerly known as Google AdWords) Auction System as a marketplace where ads compete for visibility.
When a user searches, ads with relevant keywords enter an auction. What determines an ad’s success here is not just the bid amount but also its Quality Score, which reflects the relevance and expected click-through rate.
John Powell, Paid Search Engineer at Thrive Internet Marketing Agency, explains that Google Search finds all the ads relevant to a user’s search term. If an ad is not eligible for a location or has been disapproved, then it will ignore the ad.
Image from Google Ads Help
Ads with higher Quality Scores achieve better ad placements even with lower bids, making quality just as important as the bid amount.
This system ensures that users see relevant ads and advertisers get value for their spend. You can tailor your strategies using various bid types and ad formats, optimizing your campaigns for maximum efficiency and return on investment (ROI).
What Are Google AdWords?
So, what are Google AdWords? It’s a system powered by Google that allows businesses to create and run online ads. The main goal of using this system is to increase visibility for products or services and generate more leads and sales.
Ads can be targeted to users based on various criteria, such as:
• Search queries
• Demographics
• Interests
Depending on how well an ad performs against its competitors, it will show up more frequently in the desired region and time frame. This helps businesses reach out to potential customers who might not otherwise find them through traditional marketing channels.
5 Key Components of the Google AdWords Auction System
So, what makes this auction system tick? There are a few key components you should be aware of:
1. Ad Rank
Ad Rank determines the position of an ad on the search engine results page (SERP).
“Eligible ads that win the auction are shown in the SERPs based on Ad Rank,” Powell said.
It’s calculated using the formula:
Ad Rank = Quality Score × Bid Amount
Let’s consider this scenario to understand how this is calculated:
1. Advertiser A bids $2 for a keyword and has a Quality Score of 8. Their Ad Rank would be 2 (bid) × 8 (Quality Score) = 16.
2. Advertiser B bids $3 but has a lower Quality Score of 5. Their Ad Rank would be 3 (bid) × 5 (Quality Score) = 15.
3. Advertiser C bids $4 with a Quality Score of 4, resulting in an Ad Rank of 4 (bid) × 4 (Quality Score) = 16.
In this scenario, both Advertiser A and C have the same Ad Rank (16), but since Advertiser A achieved this rank with a lower bid (thanks to a higher Quality Score), they may be positioned higher or pay less per click compared to Advertiser C. Advertiser B, despite bidding on keywords the highest, ends up with the lowest Ad Rank due to their lower Quality Score.
2. Quality Score
This is a metric used by Google to determine the relevance and quality of your ads and Google ad bidding on branded keywords.
“Your quality score is based on three main factors: expected CTR, landing page experience and ad relevance,” Powell said.
Here’s how it works:
CTR Expectation + Ad Relevance + Landing Page Quality = Quality Score
1. CTR Expectation: Google assesses the likelihood that your ad will be clicked when displayed for a particular keyword based on historical data, analytics and performance.
2. Ad Relevance: This evaluates how closely your ad aligns with the intent behind the user’s search query. Ads that closely match the search query tend to get higher scores.
3. Landing Page Quality: Google reviews the landing page your ad directs to, considering factors like content relevance, user experience, load time and transparency.
Powell explained that these factors are rated “Above Average, “Average” or “Below Average.”
Imagine a scenario where an advertiser creates an ad for handmade leather shoes.
If the ad uses relevant keywords like “handmade leather shoes” and leads to a landing page that showcases a variety of handmade shoes, offers a good user experience and has a history of high CTR, it’s likely to receive a high Quality Score. On the other hand, if the landing page is slow to load, has content unrelated to the ad, or the ad itself is vague, the Quality Score will be lower.
3. Keywords
The choice of keywords is critical as it aligns your ad with user intent. Well-chosen keywords mean your ad is more likely to reach an audience actively seeking what you’re offering.
For instance, bidding on “affordable organic coffee beans” targets a more specific audience than a broad term like “coffee.” More specific keywords lead to a higher CTR and better conversion rates.
You can also use negative keywords, preventing your ads from showing on irrelevant searches.
4. Ad Format
Google Ads offers a variety of ad formats, each tailored to specific campaign goals and audience engagement strategies.
This includes:
• Search Ads
• Display Ads
• Video Ads
• Shopping Ads
• App Ads
The choice of format should align with your specific campaign goals, whether it’s driving sales, increasing brand awareness or promoting app installations.
5. Ad Relevance
Highly relevant ads are more likely to earn better positions on the search results page, even if they have a lower bid compared to less relevant ads.
Google evaluates ad relevance by analyzing how well the Google Ad bidding on branded keywords and the ad content align with what the user is searching for. If your ad closely matches the user’s intent, Google deems it more relevant, positively impacting its Quality Score.
This is because Google prioritizes user experience, aiming to show ads that are most useful to searchers.
The Google Ads Network
We’ve already discussed how the auction system works within Google AdWords, but it’s also essential to understand where these ads are displayed and who sees them.
So, where can you see them? The answer is simple – almost everywhere! Let’s discuss them.
Search Network
The Google Search Network is ideal for reaching users actively searching for specific data on:
• Products
• Services
• Information
It includes Google Search results pages, other Google sites like Maps and Shopping and other search partners.
Ads here are primarily text-based and appear alongside organic search results, making this network perfect for targeting users with high intent, such as those ready to make a purchase or seeking a specific service.
It’s best used for driving conversions and direct response campaigns.
Display Network
The Google Display Network encompasses various channels, such as:
• Websites
• News pages
• Blogs
• Google sites like Gmail and YouTube
This network uses primarily image-based ads and is excellent for building brand awareness and retargeting. The strength of the Display Network lies in its reach and the ability to engage users across different online channels. It’s most effective for top-of-the-funnel marketing, where the goal is to capture interest and build brand recognition.
Video Partners
Google’s video partners are primarily centered around YouTube and engage with users through video content. Video content is a powerful tool for storytelling, brand promotion and capturing audience attention through engaging visuals and narratives.
Video ads are best for creating emotional connections with audiences, brand storytelling and tapping into the vast user base of YouTube. They are particularly effective for campaigns aiming to increase brand awareness and engagement.
Shopping Ads
If you’re an eCommerce business, the Shopping Ads are tailored just for you.
It showcases your product listings directly in Google Search and Shopping results, complete with images, prices and a direct link to the purchase page. It’s a highly effective way to drive sales for retailers with clear, well-categorized product inventories.
4 Bidding Strategies and Auction Insights
Choosing the right Google Ads bidding strategy depends on your campaign goals, target audience and the kind of engagement you aim to drive. Each bid strategy has its strengths and is designed to optimize your ad performance based on specific objectives
1. Conversion-Focused Smart Bidding
Smart Bidding strategies use advanced machine learning to make each auction conversion-ready. These strategies are ideal when the main goal is to drive sales or leads. They adjust bids in real time, considering a multitude of signals to maximize conversion value or the number of conversions.
Key Smart Bidding strategies include:
• Target ROAS (Return on Ad Spend): Aims to increase conversion value while targeting a specific ROAS.
• Target CPA (Cost Per Action): Optimizes conversions, targeting a specific cost per action.
• Maximize Conversion Value: Focuses on optimizing conversion value within your budget.
• Maximize Conversions: Spends your budget to maximize conversions without targeting a specific CPA.
• Enhanced CPC (ECPC): Adjusts manual bids to maximize conversions.
2. Click-Focused CPC Bidding
If your goal is to drive more traffic to your website through clicks, this is the bid strategy for you.
Google has two ways to program your CPC bidding:
• Maximize Clicks: An automated strategy that aims to bring the most clicks within your budget.
• Manual CPC Bidding: Allows control over maximum CPC bids for each ad group, keyword or placement, ideal for allocating more budget to profitable keywords or ad placements.
3. Visibility
Visibility-driven ads are designed to maximize the number of times your ad is shown, charging based on impressions. This is particularly useful for brand awareness campaigns.
Use these three strategies for visibility-driven ads:
• Target Impression Share: Aims to show your ad on the top of the page or anywhere on the Google search results page.
• CPM (Cost Per Thousand Impressions): You pay based on the number of impressions your ads receive, which are suitable for YouTube or the Google Display Network.
• vCPM (Viewable CPM): For ads aimed at increasing awareness but not necessarily generating clicks, where you pay for every 1,000 viewable ad impressions.
4. Views and Interactions
Google video campaigns utilize CPV (Cost Per View) bidding. With CPV bidding, you are charged for video views or interactions, such as clicks on calls-to-action. This bidding strategy is ideal for campaigns focused on enhancing engagement with your video content.
3 Factors Affecting Your Auction Performance
Maximizing ad performance in Google Ads requires a nuanced understanding of several key factors.
Here are three critical elements to consider, along with strategies and tips to optimize them:
1. Price
Price, or your bid amount, directly influences your ad’s potential to win auctions. However, highly bidding on competitor keywords and others isn’t always the answer.
Instead of a one-size-fits-all approach, adjust bids based on the performance of keywords or ad placements. For instance, increase bids on high-converting keywords.
You can also modify bids based on factors like:
• Device type
• Locations
• Times of day when your ads perform best
For example, if your data shows higher conversions on mobile devices during weekends, increase mobile bids for that time.
2. Quality Score
As we said, Google’s ad auction isn’t solely based on the bid amount. It also considers Quality Score. So, when targeting an audience, make sure you’re not ranking for generic terms like “shoes.” Instead, go for more specific terms like “red running shoes” to attract a higher-quality audience.
Ensure your landing page is relevant, user-friendly and fast-loading. A good match between your ad and the landing page content not only enhances the user experience but also boosts your Quality Score.
3. Ad Rank
Ad Rank determines your ad’s position and whether it will show at all.
Remember: Ad Rank = Bid × Quality Score
Work on improving your Quality Score as much as focusing on your bid strategy.
You should also keep bidding on competitor keywords. If they are bidding more on certain keywords, decide whether to compete directly or target less competitive, niche keywords.
Let’s say you run a campaign for a yoga studio. By strategically increasing your bids during January (when people make New Year resolutions) and targeting specific keywords like “yoga classes for beginners,” you could capture a higher-intent audience.
Simultaneously, optimizing your ad copy and landing pages around these themes improves both your Quality Score and Ad Rank, leading to better ad placements and potentially lower costs per click.
What’s Next for Google Ads Auction System
The Google Ads Auction System has changed so much since its inception, and it will continue to grow with new features. Here are some of our predictions for next year and beyond:
The Continued Rise of AI
Artificial intelligence (AI) has become a staple for many tech companies, including Google.
For example, Performance Max campaigns in Google Ads utilize sophisticated AI signals and machine learning to identify new audience segments and conversion opportunities
Google’s Search Generative Experience (SGE) is also expected to impact ad performance. Publishers are concerned about the decrease in website traffic because of AI-generated summaries, opening new strategies on how to leverage SGE for better ad visibility.
More Automation
Automated Google Ads bidding strategies, which use machine learning to set bids for each auction, are becoming more common. This approach not only boosts efficiency but also enhances the precision of campaigns
However, there’s a balance to be struck.
While automation saves time and increases operational precision, it also means a shift in the role of PPC managers, who will need to focus more on bid strategy and creative aspects of ad campaigns
Privacy and First-Party Data
With the phasing out of third-party cookies, there’s a growing emphasis on first-party data. Google is introducing tools like Customer Match to help you use your first-party data more effectively, enhancing user engagement and ad relevance
First-party data is also leveraged for better segmentation and targeting in the absence of third-party cookies. This approach respects user privacy while still allowing advertisers to deliver personalized ad experiences
Elevate Your Ad Performance With Thrive
And there you have it – everything you need to know about Google Ads Auction system. Use this blog as your resource to understand how ad auctions work and leverage our expert tips to create successful campaigns for your business.
And if you want to take your ad performance to new heights, Thrive has got you covered. With a combination of creativity, expertise and data-driven strategies, we help you drive more traffic and conversions with your Google Ads campaigns.
Take your ads to new heights with Thrive!
