How does online advertising work?
Link to the online article:
http://www.practicalecommerce.com/articles/129726-Google-AdWords-Ad-Rank-Impacts-PPC-Success
In class, we learned that having the highest bid will always guarantee the first advertisement spot. However, in reality, things are more complicated. Google devised an added procedure to determine which ad will show using a software called AdWords. Google has used this tool to a great degree to determine both the position and price per click of an advertisement.
The software AdWords runs through procedures to assign each advertisement a quality score. This can give users a general idea of the quality of one’s advertisement. Another value, called the Ad Rank, which is the position at which the ad will appear, is also calculated. This value is based on many different factors, one of which is the ad’s quality score. The other factors are the expected click through rate, which Google calculates based on the data of millions of daily users. Google can then gather the rate for different search queries; a rating of average or above average means the advertisement will have no problem getting clicks. Google also cares about landing page experience. Google’s criteria for a good landing page is relevant, original content, ease of navigation, fast loading speed, and trustworthiness and transparency, all qualities of a good business and good website. The last factor is ad relevance. The advertisement must be related to user’s search query, therefore the user will be more likely to click on the advertisement.
This process sounds complicated and meaningless. Why not just run a normal second price auction where the highest bidder get the spot? This is because Google wants to please both the searchers and the advertisers. Google values a good experience to the searchers, where they see relevant, meaningful ad, and to the advertisers, where creative, original ads are rewarded. This will lead to a better system, and no complaints from the customers so that people continue using Google without noticing any difference.