How Low-Paying AdSense Ads Can Dominate Higher-Paying Ads
A couple of days ago I suggested that it might (with the emphasis on might) be time to clear out the competitive ad filter as Google gets more successful at removing made for AdSense (MFA) sites from its search index. However, there have always been AdSense publishers who’ve been adamant that they absolutely MUST use the competitive ad filter to filter out the low-paying sites that are hurting their overall earnings. In fact, there’s a thread over on Digital Point discussing this in some detail. Google tells us publishers not to do that because it undermines the ad auction and may prevent you from maximizing your earnings.
It’s evident to me, however, that Google isn’t as forthcoming as they should be about the auction process. I don’t work for Google, nor do I have any special inside knowledge, but I do believe that low-paying ads can dominate higher-paying ads and lead to lower earnings for individual AdSense publishers. I’ve thought this for a long time, although I think this is the first time I’m discussing it in public, and I’m curious to hear what others have to say about it.
The Party Line
First, let’s review what Google has said about its ad selection algorithm. Remember, most of the details of the algorithm are discussed in the AdSense patent (a free detailed review of which you get when you buy Uncommon AdSense) but that really deals with the targeting of the ads, i.e. how to determine what a page is about in order to select the right keyword-based ads. What we’re interested in is how the ads are ordered after the non-relevant ads have been excluded.
In theory, the highest-paying ads get selected first so that the first ad in the first ad unit pays the most, followed by the second highest-paying ad, etc. etc. The AdSense team tells us this:
Our auction system automatically selects the best performing ads for each page to help you earn the most possible money. This is especially true with our new expanded text ads. By filtering ads you think are low paying, you could actually be cutting out the most optimized ads and decreasing your revenue potential. Each ad that is filtered is one less bid in the auction, lowering the price for the winning ad on your site. You benefit most when there is a larger pool of advertisers competing for a place on your site.
There’s the party line: don’t put ads in your filter, you’ll keep potentially high-paying ads out of the auction!
But then they continue with this:
Additionally, when we calculate the auction, we take ad clickthrough rates (CTR) into account - an ad with a $0.25 cost-per-click (CPC) with a 5% CTR is more valuable than an ad with a $1.00 CPC but a 0.1% CTR.
And this, my readers, is the crux of the problem.
The AdWords Ad Rank
Remember, AdSense is just an outlet for AdWords ads, so it’s necessary to understand how AdWords works to really understand how AdSense works. Luckily, there’s a good explanation of AdWords ad ranking on Google’s site.
What we’re interested in is the Ad Rank for keyword ads on the content network section of that explanation:
Ad Rank = content bid X Quality Score. The Quality Score related to Ad Rank on the content network is determined by: the ad’s past performance on the site in question, as well as on similar sites; your landing page quality; other relevance factors
The Quality Score (QS) is the issue, not the bid price. Remember, this is written from the advertiser’s point of view, not the publisher’s viewpoint. Advertisers who properly optimize their ads — and it’s work to do that, trust me — can pay significantly less that other advertisers and still outrank them if their QS is high enough.
High CTR, Sure, But Maybe Not For You
The clickthrough rate (CTR) is one of the major components of the Quality Score. All other things being equal, an ad that gets clicked on more often will have a higher QS and cost less. The wording above suggests that each ad’s performance is evaluated on a per-site basis as well as a per-group basis. And probably on an entire-network basis as well. We don’t know how all these different values factor into the QS.
What if a given ad performs very well on many sites, but not on your own? In other words, it has a high average CTR, and hence a high QS, but your site happens to be one of the outliers? Overall, yes, the ad performs well and makes Google money and so Google rewards the advertiser with lower costs and higher rankings. But that’s to their benefit, not yours. Google doesn’t care if the advertiser only pays a few cents per click. If the advertiser’s ad is getting clicked on thousands of times across the content network, that’s still a lot of money for Google. But each individual publisher is just getting a small piece of that action.
Then There’s The Ad Inventory…
And let’s not forget the ad inventory. There are tens (hundreds?) of millions of pages with AdSense ads on them being displayed any given second. Luckily, there’s a huge inventory of AdWords ads available to display in those slots. Or is there?
Some important points about AdWords:
- Advertisers bid separately for the search and content networks. Many advertisers shun the latter altogether. This leaves fewer ads and lower prices for AdSense publishers.
- Each advertiser defines a daily budget for their ad spending. When that budget is exceeded, their ads stop running for the rest of the day.
- They can also limit the ads to run by geography and/or language and by time of day. Again, this trims down the pool of ads.
So there are fewer ads than you might think. Worse still, to prevent advertisers from blowing their ad spend too early, the default setting is to “optimize” the ads by spreading out their display. Advertisers can override this and force the ads to show as quickly as possible. But most don’t.
What does this all mean? There will be fewer higher-paying ads and they’ll be left out of the ad rotation more often than the lower-paying ads. This means that at any given time it’s possible (and likely) that some AdSense publishers won’t have any high-paying ads in their auction, and so they’re left with low-paying ads to display.
Maybe I’m wrong about all of this, but I don’t think we’ll ever know for sure.
Note: I still like AdSense and I still think it’s a great way to monetize content. But it doesn’t work for everyone, and while collectively AdSense publishers do well it’s definitely true that individual publishers can suffer relative to others.
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Eric Giguere is the author of Uncommon AdSense and the award-nominated (that just means it lost!) blog Make Easy Money with Google and AdSense.
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AdSense, AdWords, content, earnings, Google, made for AdSense, MFA, quality, quality score
Comments
10 Responses to “How Low-Paying AdSense Ads Can Dominate Higher-Paying Ads”
Hi,
some good points. Especially the part about the quality score. It makes it all the more important to optimize ads to get a high as possible CTR
I wonder if that’s part of the reason Google’s cracking down on MFA/Arbitrage.
Very informative post, Eric! Useful to approach understanding AdSense via AdWords.
I would imagine that there’s been some kind of trigger that’s caused Google to crack down on the MFAs finally, yes. And it may have been an increase in advertiser complaints as well as a decrease in advertisers willing to give the content network a try.
I’ve always advocated opening an AdWords account to see what the “other side” of AdSense is like. See AdSense Tip #10.
I added this little tidbit of code to get the adsense block to float inline properly.
<div style=”border:0px solid black;margin-top:15px;
margin-left;20px;margin-bottom:15px;
margin-right:30px;”>
[then the adsense code]
</div>
Michelle, I’m not sure what your comment has to do with this post. Yes, you can certainly use a div tag to float the ads and set some nice margins… I do this all the time and show how to do it in Uncommon AdSense. It’s a simple but useful technique.
Eric - re low-paying ads - can you offer some advice on whether one is likely to earn more by reducing the number of ads on a page? Michael Cheney says go for the maximum ads allowed on a page.
But I see in an article dated May 3, 2007 in Internet Marketing Newswatch, George Katsoudas says: “The fewer Adsense ads … on a page, the higher the average earnings per click for you”.
He goes on to say that if you place more ads on your page, they will show ads that rank lower on Adwords (and are cheaper). Also that “Adwords are generally disproportionately expensive on the top positions”.
So he suggests reducing the number of ads to increase earning per click (although this doesn’t necessarily mean actual earnings will be higher as you could get fewer clicks).
I don’t think it enhances the look of a page or the readers’ experience by having the max number of ads, but from my experience it has increased revenue. However, now with the very low earnings per click I’m getting, I’m wondering if it would be better to carry fewer ads.
[...] my grey matter into action? One of my readers left this question in response to my recent post on How Low-Paying Ads Can Dominate Higher-Paying Ads: I don’t think it enhances the look of a page or the readers’ experience by having the max [...]
Hey Scotch, I just put up a post on the fewer AdSense ads topic just for you!
Thanks Eric - appreciate the info. I certainly understand better now that there’s no “one layout to rule them all”, so each site must be individually tested.
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