Bad News (and Some Good News) About AdWords Changes

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For our article this week, we wanted to write about what is probably the biggest search engine marketing story of the summer, if not the year. That is, of course, the impending changes to Google AdWords.


Before getting into specifics, though, we wanted to spell out a few thoughts on how all this will turn out:


* The bad news: Look forward to higher bid prices for the most popular terms -- including brand-based terms. And because the biggest businesses have the most need to bid on their own brand names -- and have the greatest need to win in search -- they stand to get hit with the highest of the keyword bid prices.


· The smaller players (and even some big ones) run a high risk of sloppy campaigns, which can mean missed opportunity.


· The good news: Advertisers will have far greater control over whether their ads remain in Google, even for ads that fare poorly. (That is, if they know what they're doing.)


Before we explain why those three points are true, let's start with a quick primer on AdWords and the AdWords changes (people who already know all this can skip ahead -- we pick our argument up again in "the bad news" section.)


How AdWords used to work. The AdWords we've all come to know and love works like this: You pick a keyword to advertise on. Google puts your ads into a rotation, and every ad in the rotation is assigned a frequency of how often it's displayed, and the position it's displayed in when it does get shown. That position and frequency are determined by AdRank, Google's own ad ranking system. (This is an oversimplification, but it will do for now.)


AdRank is primarily based on an algorithm that combines your click-through rate (number of clicks your ad has received divided by the number of times your ad has been displayed) and how much you're willing to spend on each click. It's basically a ranking based on predicted performance: If your ad has been doing well so far, it will probably do well again. So Google makes it more visible.


Because AdRank depends on two factors, you can get a pretty high AdRank by excelling in only one side of the equation. If you're paying enormous sums of money, you still stand a chance of getting a good AdRank even if your ad doesn't get many clicks. If you're getting a phenomenal number of clicks, you stand a chance of getting a very good AdRank even if you're paying next to nothing for every click (this happens to be one of the key goals of SEM).


After a point, though, if you can't get enough click throughs, or if you can't pay, you start to lose. Your AdRank drops, the frequency with which your ad appears drops and, finally, your ad disappears.


The new AdWords. There are three major changes that will happen in AdWords:


1. How they deal with ads that don't perform. Rather than gradually shifting your ads from full steam to invisible, Google will now offer a simple, two-tiered system:


· "Off," meaning your ad wasn't fairing well at all and it couldn't compete on any level.


· "On" means your ad is a full-fledged member of the Google ad network.


If your ad is worth keeping in the system, it's "on." If it's not fairing well enough to keep, it goes "off."


2. Hyperpredictive performance indicators. Google's ability to predict your ad's future performance -- which, like we said above, determines your AdRank -- just got much, much better. Meanwhile, there's a whole bunch of factors that they're using that they won't tell the world about.


3. Stay as long as you pay. If your ad ought to go "off" based on performance, you can pay a minimum bid and stay in the system. So even if your click-through rate is abysmal, you can keep your ad running for as long as you're willing to pay for the minimum click-through rate.


The bad news. OK, first, the bad news. It's the part about high prices.


Now that everyone can stay in the AdWords game, the bid price for a whole lot of keywords is likely to go way up. That's because the minimum bid just to stay in the game, and the sheer numbers of people trying to stay in the game by paying that minimum price, will drive costs up for everyone. What e-tail business wouldn't pay top dollar just to stay in AdWords during the holiday shopping season? The same holds true for travel businesses in the summer. And when the worst-performing players all rush in just to be allowed to play, the price really goes up at the top tier. Welcome to price hikes.


The really unappetizing part is that the highest prices will be on the terms that people think they absolutely must advertise on because they're the terms on which you stand to lose the most against your competitors. Examples? Generic terms. Or your own company's brand name.


Meanwhile, though getting an ad dropped from AdWords isn't always pretty, it does serve a purpose. There's something Darwinian (in a good way) about how AdWords works currently: If your ad disappears, it's Google's way of telling you that you need to change your campaign approach. If your ads keep disappearing, you need to overhaul. Now, with the option of just putting down more money for poor-performing ads, advertisers might not realize how much change they really need to make. So they won't improve. So they'll lose potential revenue to the competition.


(There's bad news from the high predictability, too. But that's a much, much bigger and more complicated issue. Maybe we'll leave that for a later piece.)


The upside. There is an upside to all of this. It boils down to an issue of control: Now you get to decide when your ad stays in AdWords or when it doesn't. Just because Google has decided that you're not the best match for Google, it doesn't mean that Google isn't the best match for you. After all, Google, with its hundreds of thousands of advertisers every second, can't possibly have thought through what not advertising in AdWords on a given keyword means to your business.


You might decide legitimately that a poor-performing keyword is still worthwhile. Maybe, for example, the few leads that you do get through that keyword bring a phenomenal ROI. Or maybe you're not in SEM for the click throughs -- maybe you're using it for branding.


Whatever reason you have for being in Google, though, you'd probably like the control of deciding for yourself whether to stay in AdWords or to leave. With the new AdWords changes, now you have that control (if you're willing to pay for it).


Of course, that's provided that you really understand what you're doing when taking on a task like intentionally running a poor-performing ad. Such a decision usually shouldn't be taken lightly.


Good news, tough questions. Before you panic about the AdWords changes, take a deep breath and realize that Google isn't such a new invention. And the job of maneuvering your SEM campaign in Google isn't changing 180 degrees overnight, either. Our own firm's assessment of the new Google changes is this: If you know Google, you know Google. Of course, you'll need to adapt the way you play the game, but if you know the game well enough going in, the changes won't need to faze you.


That isn't to say that figuring out how to deal with the changes is easy. Far from it. But we are saying that a large Google arsenal will make the AdWords changes that much less of a challenge, and that much more of an opportunity.


Of course, that statement puts a tremendous burden on Web marketing teams everywhere. They'll need to ask the potentially uncomfortable question: "Just how well do we know Google (with the old kind of AdWords and the new kind) anyway?" And if they aren't sure of the answer, they'll need to take action and quick.


Regardless of the answer, though, it's a question they can't afford to overlook. After all, the competition isn't waiting around.


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Founded in September 2009, Stirista is an integrated marketing agency that specializes in ...