How Google Ads Auctions Work

Welcome back, aspiring Google Ads expert! In part 1, we explored the different online advertising models (PPC, CPM, etc.) used in Google Ads. Now, let's peel back another layer and delve into the exciting world of Google Ads auctions – the core mechanism that decides which ads appear when people search online.

Let's consider your bakery, which is famous in your locality for the melt-in-your-mouth chocolate chip cookies. You want everyone to know about your delicious treats, but instead of relying on word-of-mouth alone, you decide to advertise in the local newspaper. Here's where Google Ads auctions come in.

The Bidding Frenzy: How Ads Vie for Attention

Imagine yourselves walking down a busy street downtown. The street is dotted with stores on the sides. Each of these stores have a nameboard and some of them will have interesting lights and other fancy aspects to capture your attention. You are walking down the street with an intention to buy a product. If you see a store that displays the product in your mind prominently, you consider, and then walk in.

Similarly, think of a Google Ads auction like an auction for displaying your ad on a search engine results page (SERP). Whenever someone enters a search term, like "freshly baked cookies," Google conducts a real-time auction among advertisers targeting relevant keywords. Several factors determine which ad wins the auction and gets displayed in a prime position:

Your Bid: This is the maximum amount you're willing to pay each time someone clicks on your ad. It's like setting your spending limit at a physical auction. In our bakery example, you might set a bid of $1, meaning you're willing to pay a maximum of $1 whenever someone clicks on your ad after searching for "freshly baked cookies."
Ad Rank: This score combines your bid with other factors like the quality and relevance of your ad and landing page. Going back to the bakery example, even if a competitor bids higher than your $1, your ad could still win the auction if your ad and landing page are highly relevant to the search term "freshly baked cookies" and have a strong Ad Rank. Google rewards relevant ads because they provide a better user experience.
Ad Extensions: These are additional snippets of information you can add to your ad, like your phone number, address, or special promotions. Imagine including a call extension with your bakery ad, allowing users to call you directly from the search result page. This can give you an edge over competitors who haven't included extensions.

The Auction Outcome: Who Wins and Why?

The advertiser with the highest combined Ad Rank (considering factors like bid and ad quality) typically wins the auction and gets their ad displayed in the most prominent position on the SERP. But here's the good news: you don't necessarily need the highest bid to win. By crafting highly relevant and high-quality ads, you can outrank competitors even with a lower bid.

Beyond the First Place: The Bidding Waterfall

Google Ads auctions aren't just about who gets the top spot. There are multiple ad positions available on a SERP, and the auction determines which ads appear in each position. The cost you pay per click (CPC) can also vary depending on your ad rank and the competition for that specific keyword.

Let's revisit the bakery example. Imagine two other bakeries are also bidding on the keyword "freshly baked cookies." You might win the auction for the top spot with your $1 bid if your ad and landing page are exceptional. However, the other bakeries might still appear below your ad if their Ad Rank is high enough, even though their bids might be lower than yours.

A Win-Win for Advertisers and Users

This auction system benefits both advertisers and users:

Advertisers: You only pay when someone clicks on your ad (PPC model), making it a cost-effective way to reach potential customers actively searching for what you offer (freshly baked cookies!). You can also set daily or campaign budgets to control your spending.
Users: They see ads relevant to their searches and don't incur any cost unless they click on an ad. Google prioritizes relevant and high-quality ads, ensuring a positive user experience.

In Conclusion

Understanding Google Ads auctions is fundamental to your success in this dynamic advertising platform. Remember, it's not just about throwing the highest bid; it's about crafting compelling and relevant ads that resonate with your target audience. By focusing on quality, relevance, and strategic bidding, you can win the auction and get your ads in front of the right people at the right time.

As we progress, we'll delve deeper into crafting high-performing ads, keyword research strategies, and campaign optimization techniques to help you become a Google Ads whiz!