“Why are they being so secretive?”
“What are they hiding from us?”

These kinds of questions appear from time to time in forums and blogs across the internet. Recently the renowned conspiracy-loving tech website The Register ran an article criticising the search giant and its callous and underhanded attempts to manipulate the algorithm to keep advertisers thinking there simply isn’t traffic available.

Let’s have a look and see what it appears they are doing.

Google’s secret money-making formula!

The claim put forward by search marketing trend trackers AdGooRoo is that Google deliberately limits your impressions. The result of this is that you think that you are bidding on a very low amount of traffic and so up your bids. This keeps the price artificially high.

There is certainly evidence to support this proposition. Advertisers find that their share of total available impressions isn’t as high as it could be. This is notoriously difficult to measure but by and large advertisers who continually show in positions below the top find that their impressions aren’t as high as if they were at the top. Even though they are showing on the first page!

There seems to be some mistake, right? Surely if the top ad is showing then the rest of the first page ads are showing as well. The theory goes that Google are saying “you’re not paying as much, so we’re going to rotate you off the page more often so that you need to bid higher to capture the lower impressions available to you.”

Auction dynamics

It’s a nice theory. It’s very neat and it seems to play well into a “they’re secretive, they make a lot of money, so they must be doing something wrong” mindset. Here it is! Data-based evidence that the motives of the company whose informal motto is “Don’t be evil” aren’t all they’re cracked up to be.

But it turns out there’s another explanation. One that follows logically from Google’s (albeit sparse) explanations of how their auction system works.

Google’s auction is a second price auction. What this means is that you bid, and the winner pays the price that the second placed bidder bid. Now this seems very counter-intuitive at first. Why would anybody design an auction this way? But it’s perfectly logical. If you’re at an auction house buying a piece of art that perfectly matches your living room then you will have a monetary value on that piece. It is worth something to you, a value totally different from what it is worth to anybody else. So it seems logical to pay that price. But you don’t necessarily have to. All you have to do is keep bidding until the other person drops out. So you pay X amount more than them, rather than your own true value.

When you think about it, most auctions are actually designed this way. A traditional English Auction (the kind you see in the auction house example above) means that even if you value an item double the value anybody else places on it, you don’t pay double. You pay just enough to beat the next highest bidder. When you bid on an eBay item, you pay just enough to beat the next highest bidder. Your true value is a secret known only to you.

The optimum strategy for almost any auction is to bid your true value. Quite simply, if you win and you are paying less than your true value then you are gaining (you have the item, and the surplus you would have paid). If you lose then it’s because the item cost more than your value on it.

The same is true of the Google auctions. You put a value on the click that represents your true value, but you only pay enough to beat the bidder below you (although this is highly adjusted by the Google algorithm, and you actually pay enough to beat the bidder below’s ranking, based on your quality score. So you can pay less than people below you).

The quality score effect

Google tries to make the system more fair. Not more fair in a capitalist, free-market, “if they can’t afford it they don’t get it” way. But more fair in a “people who can’t afford much but have good ads shouldn’t be penalised too harshly” way.

This is done by the mysterious system known as Quality Score. Your account, campaign, ad group, and keywords all have a quality score associated with them. This is developed over a history of people clicking on your ads. It is based on things like:

How closely the keyword matches your ad text.
How closely the keyword matches the landing page text.
How many people who search on that keyword click on your ad.

The bid on an ad and the quality score are combined to determine the rank your ad earns for that search. As far as it is possible to tell (and this much is secret) the algorithm looks something like this:

(bid)×a(quality score)×γ

Where:

γ = random factor,
a = weighting coefficient.

The weighting coefficient simply gives a relative strength to the bid versus the quality score in determining the rank, but the interesting factor is gamma. This is a random figure that is strongly weighted by your quality score. What it means is that if you have a good ad but a low rank, you will still sometimes be upgraded to the first page. Similarly if you have a high bid and a high rank, you can still sometimes drop off. The ads are effectively rotated so that your rank is not static. You will on average appear in the position that your bid and quality score have earned you, but you cannot take for granted that you will appear on the first page every time.

So what happens?

The result of this is an effect that looks a lot like the picture being painted by the data – you seem to be off the first page more than your rank would indicate and you are not receiving as many impressions as if you were in a higher position. This picture (first image, midway down the page) quite clearly shows that the impressions per position decreases as your ad rank decreases. I.e. that if your ad has been judged to fall further down the page, it is also in a position that is more likely to be rotated off. This is not done on ad position, it’s done on quality score (to allow high quality score ads to leapfrog poorer but higher-paying ones) which correlates strongly with ad position.

Conspiracy theories

So how likely is our conspiracy theory? Well it’s possible. It could well be that Google’s algorithm really does deliberately rotate you off the page if you’re not bidding highly enough. That they restrict your impressions precisely so that you will bid more to get your share of it. But Occam’s razor suggests that the other explanation is more likely. It fits with their claims. It fits with their stated motives. The data matches the hypothesis.

Disclaimer:
The algorithms that Google use are secret. The posited one above is only conjecture, based upon ad performance and Google’s own claims about the factors used and intended behaviour of ads. The conspiracy theory could be correct.

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