Google Unveils "Smart Pricing" for Content Ads

  |  April 1, 2004   |  Comments

Some clicks will cost more than others for the same ad. Google is changing the way it prices AdWords.

In a move intended to "normalize" per-click prices based on the value clicks deliver to advertisers, Google will overhaul its AdWords pricing system for contextual ads. The company plans to eventually roll the pricing model out across its paid search listings, too.

The system, known as "smart pricing," assigns each click a value based on a variety of factors, according to Google. Variables include site on which the ad appears, and the portion of the site where the ad appears. The company won't divulge the exhaustive recipe for its "smart pricing" secret sauce, saying only a number of variables will be considered. Advertisers will still be ranked by relevance and bid price, but will pay less for some clicks than for others.

"Advertisers bid just like they're bidding normally," explained Susan Wojcicki, director of product management at Google. "After the auction, if we determine that a type of inventory, or a part of a site, or a site are worth a different amount, we'll apply an adjustment to that inventory, to that click. For every click, we say, 'what do we expect the value of that click to be?' We'll then adjust the CPC."

Adjustments will only lower, not raise, the amount paid by the advertiser.

The dramatic move reflects both Google's determination to continue to introduce different types of inventory (such as contextual ads on its upcoming Gmail service) and its intention to keep things simple for advertisers. Rather than giving advertisers the option to tweak bid prices by site, type of site, etc., Google makes that decision on their behalf.

"We may determine that a click on an ad for digital cameras on a Web page about photography tips is worth less than a click on the same ad appearing next to a review of digital cameras," explained a Google spokesperson.

"Sometimes advertisers will say to us, 'we want separate bidding, we want separate CPCs. We don't want to have to have an ad on that site,'" said Wojcicki. "Our goal is we just want to be able to do this for the advertisers dynamically. They should be able to just bid."

The approach differs markedly from that of chief competitor Overture. Back in January, that company decided to let advertisers bid separately for search ads and contextual ads. Earlier both Google and Overture let advertisers opt-in or -out from contextual ads, but they couldn't bid separately.

Though Google says its pricing change is in advertisers' best interests, some marketers feel they'd be better off if their hands were on the controls.

"I prefer to have a situation that puts the marketer and their agency in control of price they are willing to pay as it results in better efficiencies than a closed system," said Kevin Lee, CEO of search marketing firm

Search marketing has become so popular with advertisers that engines have rushed to expand inventory through new distribution methods and types of inventory. The difficulty for marketers is that different distribution vehicles provide differing results. Therefore, they're willing to pay more to appear on one site than on another.

The last few weeks have seen a flurry of different potential advertising vehicles from Google, each presumably delivering a different return on investment for advertisers. The company most recently announced tests of a free Web-based email product, Gmail, which will carry ads targeted based on the content of the email. A local search service is beta testing. The company counts Blogger, Google Groups, Google News, and Froogle among its wholly owned distribution vehicles.


Pamela Parker

Pamela Parker is a former managing editor of ClickZ News, Features, and Experts. She's been covering interactive advertising and marketing since the boom days of 1999, chronicling the dot-com crash and the subsequent rise of the medium. Before working at ClickZ, Parker was associate editor at @NY, a pioneering Web site and e-mail newsletter covering New York new media start-ups. Parker received a master's degree in journalism, with a concentration in new media, from Columbia University's Graduate School of Journalism.

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