Originally, Google AdWords was sold by cost-per-thousand impressions (CPM), and it's my understanding the CPM option is still available (targeted, custom Premium Ads). But all the current excitement is about the CPC pricing, because you only pay for clicks. So if your ad doesn't generate any clicks, you basically get the benefits of free branding.
Google AdWords Select allows you to pay only when your ads are clicked on. This can be good news for advertisers, although it really depends on the keywords you target.
At first glance, it sounds like a sweet deal: a $5 set-up fee, and a 5 cent minimum bid. However, while the bidding begins at 5 cents, it varies according to keyword popularity, so you can end up paying a lot more than this starting point.
Google lets you set your own minimum CPC for each keyword by using a traffic estimator tool designed to help determine what the minimum CPC for your keywords will be. Then you can use the AdWords discounter tool to ensure you don't pay more than you should for a keyword -- this tool eliminates so-called "bid gaps."
Do the Ads Taint Results?
AdWords Select ads appear to the right of Google's search results in shaded ad boxes labeled "sponsored links." However, unlike most PPC programs, the top position doesn't necessarily go to the highest bidder. Ranking is determined by two factors: ad performance or click-through-rate (CTR) and the advertiser's bid per click (CPC). Google says this ensures that users see the most relevant ads first. Search results continue to be determined by Google's algorithm, unaffected by payment.
The AdWords Discounter monitors all the keyword bids to ensure you get the lowest CPC possible to maintain your position. In other words, if your competitors' bids change, the discounter automatically adjusts your CPC to maintain position after every search. In this respect, it outperforms Overture, where your fixed bid can result in inflated CPCs relative to the bid for the position directly below yours.The Benefits
This new advertising program has many benefits:
Instant Exposure: Your ad goes live instantly. Google says you can "Start gaining new customers in less than 5 minutes."
Low Set-Up: $5 fee to open an account (not applied to click-throughs).
CPC Pricing: You only pay when users click on your ad.
Low Minimum Bid: Five cents minimum, but it varies with keyword popularity.
Traffic Estimator: Estimates the minimum cost-per-click for your keywords.
Unlimited Copy Changes: You can edit your ad online as often as you want without charge, and Google saves copies of changes in case you want to revert at any time.
Campaign Management: AdWords Discounter automatically gets you the lowest possible CPC. No messy spreadsheets.
Keyword Insurance: If they don't work, Google automatically disables any keywords with less than 0.5 percent CTR.
Geographic and Language Targeting: You can target ads by language, or by different country (there are 250 to choose from).
Accountability: Google provides online reports, accessible 24/7for all ads and campaigns. This includes full accounting of the number of times your ads were clicked and the calculated CTRs.
Enhanced Relevancy: Ranking is performance-based (user response influences the order of ads), giving users more relevant results.
The Pros and Cons
First, the good news: users will like the fact that ads won't show up in results -- above or below the fold. They're clearly labeled "sponsored links" and are shown in rectangular boxes to the right of the page -- clearly an ad. These ads are targeted and should get clicks from motivated users.
Advertisers don't buy their way to the top, as ranking is both performance- and bid-based. The ad's CPC is multiplied by its CTR, resulting in a value that's used to rank the ad. This gives an advantage to ads with higher CTRs, which Google says are more relevant. It's bad news if you get less than a 0.5% CTR because Google will remove or "pause" the ad while the advertiser tweaks it for a better CTR. The advertiser can object, but is encouraged to follow simple steps to improve performance of the keywords.
You can set your own price and rest assured there won't be a bid-gap like on other PPC programs. This is an advantage because you don't have to monitor the campaign closely to determine the best ROI. Select your own price, and if it's too high based on what others are paying, Google will lower it automatically. This gives you control and flexibility without having to second-guess the value of your PPC campaign.
AdWords Select can be pricey for certain keywords, because pricing varies in accordance with keyword popularity (despite the 5 cents minimum bid). It's also hard to estimate where you'll rank because Google ranks the ads by factoring in the ad's click-through rate (CTR) as well as the CPC price. This differs from Overture and other PPC programs where ranking is simply determined on a highest-bid basis.
From Google's standpoint, AdWords Select is an ace in the hole. For advertisers, it has a few flaws that need some adjustment see Danny Sullivan's assessment.
More Information on Google AdWords Select
Google's "Full-Strength FAQ" is very thorough. You'll want to read it carefully.
The AdWords Select LogIn page has a link for trying it out with no obligation to buy (upper left corner).
Google AdWords Keyword Suggestion tool can be accessed here.
Paul J. Bruemmer has provided search engine marketing expertise and consulting services to prominent American businesses since 1995. As Director of Search Marketing at Red Door Interactive, he is responsible for strategizing and implementing search engine marketing activities within Red Door's Internet Presence Management (IPM) services.
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