Impact of Google's Update to Ad Rank Algorithm

Google Changes Weighting in Ad Rank Factors 

Google has recently announced a change to Ad Rank which began rolling out on a small percentage of traffic in early May, and is expected to roll out more broadly soon. Ad Rank is the value that Google uses to determine ad position for each advertiser in a given auction. This update will impact advertisers’ CPC (cost per click) and Impression Share, particularly on highly competitive queries for which an advertiser is currently bidding into Positions 1-3. Official Communication from Google below:  

Google is continuously making improvements to ads quality as part of our ongoing efforts to improve users' and advertisers’ experience with our ad products. We have made a change to the Ad Rank thresholds for search ads on that may have impacted your ad metrics.  

The Ad Rank thresholds are adjusted along a number of dimensions, such as country, device and position, in order to ensure we place an appropriate weight on quality as well as advertiser bid and value. For example, the thresholds for ads above the search results are higher than the thresholds for ads below the search results in order to reflect the importance of a high quality user experience and the value of this advertising space.

While ad quality continues to play a very important role in the Ad Rank calculation, this particular improvement adjusts the thresholds such that bids may carry a larger weight in Ad Rank than in the past for some queries. You may notice that on these queries, even though you continue to have high keyword Quality Scores, that you experience a change in your core ad metrics. 

As always, you can increase the likelihood of receiving an impression and improve your position on the page by improving your ad quality, or raising your Max CPC bids. Keep in mind, average CPCs may fluctuate, so it is important to set the appropriate Max CPC bids to ensure that you are never paying more than what you are willing to pay and value a click at.

What Does This Mean?

Basically stated, there has been a change in the weighting factors for Ad Rank in Google AdWords. The new formula for Ad Rank places more importance on the keyword bid itself when determining ad position and CPC, thereby reducing the importance of other Ranking Factors such as Quality Score. As a result, bid adjustments will have a more pronounced effect on an ad’s position and corresponding CPC. We expect this change will have the most significant impact on keywords that have historically shown at the top of the search results (Positions 1-3). iProspect predicts two potential changes in advertisers’ account performance:  

  • CPCs Could Rise. In auctions where an advertiser is typically playing in the top three spots, their keyword bid will become a bigger factor in the CPC they pay. So, if the keyword bid is significantly higher than what their current average CPC, they will likely see CPC increase. iProspect expects this to be particularly impactful on core brand and trademark keywords.  
  • Impression Share Could Be Lost due to Ad Rank. Advertisers will likely see some keywords begin to lose impression volume for keywords whose bids are not high enough as a result of the new Ad Rank formula.

What Advertisers Should Do to Be Prepared

As with any algorithm update, close monitoring and swift reaction to observed changes are critical. In order to successfully navigate this change, iProspect recommends the following next steps: 

  • Monitor Brand Term Bids. If utilizing bid strategies through DoubleClick Search, Kenshoo, Adobe Media Optimizer, etc, advertisers will likely have to make adjustments to maximum bid thresholds or ROAS goals to ensure that they maintain coverage or mitigate potential rises in CPC. 
  • Align on Bid Approach. As a result of this change, brands will have to align on what they’re willing to pay for every click and adjust bids accordingly. With Google placing greater weight on the keyword bid, it’s important that marketers are bidding based on the value of each potential click from the SERP. 
  • Re-evaluate Non-Brand Terms and their performance relative to overall goals. Advertisers will likely need to make decisions on what average position they target for competitive non-brand keywords in order to mitigate any additional costs that could impact efficiency