International Law

Quality scores and Ad auctions

Image by Esthr via Flickr

Hal Varian, Google's Chief Economist, has an explanation about Adsense's quality score that is interesting.

"Suppose that two advertisers are bidding on the keyword "jet airplane." Joe's Jets is selling actual jet airplanes, while Moe's Models is selling models of jet airplanes. Since jets are expensive, Joe is willing to pay a lot per click.

But not many people can afford to buy jets, so Joe won't get many clicks. Moe, by contrast, is willing to pay a lot less per click, but he will also get many more clicks.

Which ad should be listed higher in the "sponsored links" section of the search results page?

What matters in this decision is not simply an advertiser's value for a single click -- the maximum CPC that the advertiser is willing to pay -- but rather the total estimated value of showing that ad: the value per click times the number of clicks that the ad is likely to receive.

The number of clicks that the ad is likely to receive depends on the historical clickthrough rate, which is an important component of the ad quality score.

Thus the bid per click times the quality score gives us an estimate of the total value of displaying an ad over time. Joe's ad may have a higher value for a single click, but if Moe's ad gets a lot more clicks over time, it could easily have a greater total value. In that case, Moe's ad will be shown in the more prominent position. 

The quality score gives search engines a way of aligning the incentives of the buyers, the sellers, and the viewers of ads."

If this article is supposed to make sense of Goggles' secret sauce Quality Score, there are several holes in the argument. The most obvious is that the Google Quality Score depends on more than the relevance of the landing page - it depends where people are coming from. By simply weeding out placements which don't convert, I would be increasing Google Quality Score without changing the landing page at all.

Full post as published by Misleading Advertising Law on October 27, 2008 (boomark / email).