I wanted to run a thought by you about cost and position. If you know the answer or have an opinion please let me know. I’ll tweet about the correct answer if we can get some clarity on this.
Here it goes…
You know those gung-ho position 1 people? The people who always must be in position 1 or they feel like AdWords won’t work.
Do you know people like that?
Maybe you have clients who are that person.
Maybe you are that person!
And that’s okay, it’s fun to see your ad in the first position. I have many campaigns where I find that the most effective thing I can do is be in position 1.
But consider what I’ve been thinking about today…
Google has told us that you just pay one penny more than the person under you.
Assume five advertisers are competing for a maximum of four ad positions above search results on the Google search results page. The respective Ad Rank of each of the advertisers is, say, 80, 50, 30, 10, and 5.
If the minimum Ad Rank necessary to show above the search results is, say, 40, only the first two advertisers (with Ad Ranks of 80 and 50) exceed the minimum and show above the search results. The advertiser with the Ad Rank of 80 pays just enough (Ex: rounded up to the nearest billable unit, which in the U.S. is $0.01) to beat the advertiser with the Ad Rank of 50. Since there’s no other eligible competition, the advertiser with the Ad Rank of 50 pays just enough to beat the minimum Ad Rank of 40.
If the minimum Ad Rank necessary to show below the search results is 8, then two of the three remaining advertisers (with Ad Ranks of 30 and 10) will show beneath the search results. The advertiser with an Ad Rank of 30 will appear in the first position beneath the search results, and will pay just enough to beat the advertiser with an Ad Rank of 10. The advertiser with an Ad Rank of 10 will show beneath that advertiser, and will pay just enough to beat the minimum Ad Rank of 8. The advertiser with an Ad Rank of 5 didn’t meet the minimum Ad Rank and so won’t show at all.
Back to this email…
The advertiser in position 1 will pay “just enough,” which is $0.01 more to beat the advertiser in position 2, who has a lower ad rank. And position 2 will pay one penny more than it takes to beat the advertiser in position 3, who has a lower ad rank than the advertiser in position 2, and so on.
So here’s what I’m struggling with… an example…
Assuming quality scores are equal for three advertisers.
Advertiser A is bidding $10.
Advertiser B is bidding $8.
Advertiser C is bidding $2.
Again, all three have the same quality score.
From the above quote from Google, we learn that Advertiser A will have the highest Ad Rank and show up in position 1 and pay one penny more than Advertiser B who will show up in position 2 and pay one penny more than Advertiser C who will show up in position 3.
So does that mean that they will have the following cost per clicks:
Advertiser A is bidding $8.01.
Advertiser B is bidding $2.01.
Advertiser C is bidding $2.
Or will they have the following cost per clicks:
Advertiser A is bidding $2.02.
Advertiser B is bidding $2.01.
Advertiser C is bidding $2.
The discrepancy I’m struggling with is Advertiser A, the person in position 1.
Assuming quality scores are equal… is Advertiser A’s cost per click going to be one penny more than Advertiser B’s original $8 bid? Or is Advertiser A’s cost per click going to be one penny more than Advertiser B’s effective cost per click of $2.01, which is what that advertiser has to pay to be above Advertiser C’d lower bid?
I am fairly certain that Advertiser A’s actual cost per click is based on Advertiser B’s max cost per click bid and not their actual effective cost per click.
Am I right? Do you agree? Do you think that assuming quality scores were even, and they were bidding:
Advertiser A is bidding $10.
Advertiser B is bidding $8.
Advertiser C is bidding $2.
Then the actual cost per clicks would be:
Advertiser A is bidding $8.01.
Advertiser B is bidding $2.01.
Advertiser C is bidding $2.
Do you agree with that?
I think that’s the case but I’m not 100% sure.
But if that is the case, here is where the golden spot, gravy train of being in position 2 comes into play.
Assuming quality scores are equal, your high bid of $8 is causing Advertiser A in position 1 to have to pay $8.01, but you’re getting away with an actual cost per click of $2.01 sitting just under position 1 in position 2, and you’re getting away with that because Advertiser C is bidding so much lower than you and Advertiser A.
If I’m right about this, then there might be a serious sweet spot in many auctions where you show up in that cut off point between super high bid advertisers and lower bid advertisers, and you bid high yourself, and you cause the higher bidders to pay a ton because your bidding almost as much as them and you’re forcing things to stay expensive to be above you. But you yourself are getting away with a super cheap cost per click because the advertisers below you are bidding way below you.
So you force advertisers above you to pay a ton, and you get away with paying much less, and possibly nothing near what you’re bidding, since your cost is only going to be one penny above people bidding way less who are showing up beneath you.
So if there is this opportunity to bid high, show up high in position 2 or 3 and still get clicks, and make the positions above you pay a ton, but you yourself only pay a little to be above lower bidding competition, then there is this massive sweep spot opportunity to really damage the people above you, while getting lots of volume in position 2 or 3 on the cheap.
If everyone in the auction is bidding a ton, this AdWords “sweet spot” won’t exist.
But if the position 1 advertiser is bidding a ton, and position 3 advertiser is bidding way less, than the sweet spot might exist, if I’m right about the bid calculation above.
If this sweet spot exists, it can be used to brutalize people above you and make them pay the absolute max (up to their bid if you can determine it), while you can get click volume sitting in position 2 and have a super cheap cost per click if position 3 isn’t bidding anywhere near you and position 1. And again, this is assuming quality scores are very close.
What do you think?
