AdWords Changes AdRank Formula, More Heavily Favors Bids

In May the news began circulating that AdWords was "updating" the thresholds for Ad Rank in ways that impact performance metrics like Cost Per Click (CPC) and Average Position.

As you probably know, Ad Rank is a score that Google uses to determine the position of a paid search ad on the search results page. It's based on a combination of keyword bid, expected click-through rate (CTR), ad relevance, landing page experience and implementation of ad formats like sitelinks and callout extensions. It's calculated whenever a search is conducted.

Ads are required to meet Ad Rank thresholds in order to show on the first page of the search results. Thresholds are higher to show at the top of the page above the organic results than they are for ads displayed at the bottom and can also vary depending on factors such as country and device.

The most recent change affects how Ad Rank thresholds account for meaning of the query—specifically, context. For example, a news-related query is likely to have a higher threshold with fewer ads meeting the minimum requirement than a product-related query. And then, depending on that context (i.e., query meaning), bids are weighted more or less heavily in the Ad Rank calculation.

Although there appears to have been no formal announcement from Google, when queried they apparently issued this statement as reported by multiple sources:

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 a result, you shouldn't be surprised if your CPCs increase in highly competitive keywords due to advertisers increasing their bids hoping to further influence Ad Rank. It's now even more im...