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Google Ad’s Auction System Simplified in 3 Minutes

Google Ad’s auction bidding market powers it’s advertising platform, Google Ads. Let’s quickly break down how the Google Ads auction works.

Almost every search query a user conducts via the Google search engine triggers an auction to determine which advertiser’s ad is served to the user. These automated auctions take place within a fraction of a second, considering various factors to decide where and if ads rank on the search engine results page and how much advertisers pay.

When advertisers open up a Google Ads account, thier next steps after taking care of administrative tasks are to choose keywords they want to serve ads for, create ads, and develop a bidding strategy that informs Google on how much they are willing to pay per click.

Of course, the process is more complex than this outline. However, these are the basic requirements to run ads on Google’s search engine. In real life, it takes weeks to develop a strategy, set up an account, and do the proper market and keyword research when getting started with a Google Ads account.

Once advertisers have their accounts squared away, they are ready to serve ads. Every moment an ad is served, an auction is entered.

During a typical Google Ad’s auction, Google’s algorithm ranks ads based on many evolved factors. These factors include:

  • Bids: The maximum CPC the advertiser sets.
  • The Ads’ Quality: The quality of an ad is determined by the ad’s, keyword, and landing page’s relevance to a search query, the expected click-through rate, and landing page experiences after clicking on the ad.
  • Competitiveness of an Auction: A query such as “lawyers” is highly competitive. Therefore, advertisers expect to pay a premium price to serve ads for that search query.
  • Context of the Search: Google factors in many contextual factors centered around the user. These factors include location, device, time, intent, other ads, search results, and user signals and attributes.
  • Expected Impact of Extensions and other Ad Formats: Google Ad’s suction places a premium on the use of ad extensions. Ad extensions are extensions of ads that take into consideration the context of the search query to give the user more information about a business, product, or service.

    One of the most useful ad extensions is call extensions. Call extensions allow users to call advertisers directly from the search engine results page.

  • Meet Ad Rank Thresholds: There are thresholds Google sets for each auction based on the factors listed above. In other words, if an advertiser does not meet Google’s minimum requirements, they will not be able to bid in an auction.

This auction is referred to as a second-price auction. When you enter a “first-price auction,” the amount you bid is the amount you pay. In a “second price auction,” advertisers don’t pay what they bid — they pay just enough to beat the next ranked ad’s bid.

The second price auction produces two distinct CPC metrics or “costs per click,” the Max CPC bid and the average CPC. Your max CPC is the maximum amount you are willing to pay for a click, while your average CPC is the average amount you have paid for clicks over a given period.

Google’s primary selling point is that the search engine serves search results precisely to satisfy the intent of the search query. The search engine produces quality results that answer questions with reliable information, up-to-date resources, and various links.

Therefore, it’s in Google’s best interest to derive the best experience possible for its user. It does this by incentivizing quality ads by giving a discount to the best ads in the form of a quality score.

If your ads are of low quality, you have to pay a lot more for Google to show your ad to its users. If Google Ad’s auction deems your ads are high quality, you can win a higher position at a lower price even if your competitors bid higher than you.

Optimizing your Google Ads account is entirely based on increasing the quality of your ads to drive better results at the lowest cost possible. It all starts with understanding how Google Ad’s auction system works.