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Google and its sibling companies at Alphabet collectively bid on thousands of keywords in AdWords. That has been going on for years. The search giant has said its ad buying does not “directly inflate” pricing for other advertisers because “advertisers are charged as if it wasn’t bidding.” However, that’s not quite accurate.
Participating in its own ad auctions has long raised conflict of interest objections. A report from The Wall Street Journal last month put a spotlight on the practice again with some eye-popping stats and renewed our questions about how these ads affect other advertisers.
Based on conversations with Google and what we already know, this is how an AdWords auction works when Google (or another Alphabet company) advertises:
Google enters the auction, essentially like any other advertiser.
Just as with any other auction, all ad positions are based on the AdRank of each participant in the auction. The best AdRank gets the top position.
The CPCs that advertisers end up paying are determined only after Google’s AdRank is taken out of the mix. For example, if Google wins position 2, then the advertiser in position 1 ends up paying just enough to have beaten the AdRank of the advertiser in position 3.
Using the same information from the auction above, here’s an illustration of how CPCs are calculated when Google entered and won position 2.
By skipping over Google’s AdRank and calculating Advertiser 1’s CPC based on the AdRank of Advertiser 2, the prices stay the same as when Google wasn’t participating in the first auction scenario above.
This is why Google maintains that its participation doesn’t directly inflate prices.
What happens when Google wins the auction?
When Google wins the auction, it is also technically true that it’s AdRank has no effect on the prices advertisers in the positions below pay. In fact, Google doesn’t factor into the pricing at all when it wins the top spot.
A lack of transparency
There are also questions about how much Google really bids and how high its quality scores must be to keep winning the top spot so often. Per The Wall Street Journal’s report:
“Google said that its ads only appear atop results because of the ad’s quality and the price Google is willing to pay. Google said its house ads are also subject to marketing budgets.”
Google is saying its ads are treated just like everyone else’s in terms of quality scores and bids. Adding that their ad buying teams are beholden to marketing budgets is a way of saying its teams don’t just drastically outbid everyone. A Google spokesperson reiterated to Search Engine Land that internal teams are held accountable for their AdWords budgets like other marketers. Still, to outsiders, this can look like money just moving around the same pot.
There is also no transparency into whether a Google ad’s quality is determined the same way as a typical advertiser.
Marty Weintraub of Aim Clear analyzed SpyFu data that showed Google may be spending millions to promote AdWords on SEO-related keywords, for example.
“We wonder what the quality score is tendering Ads about AdWords for SEO KWs?” Weintraub asked.
There is no way of knowing this because Google hasn’t said publicly whether its ads are held to the same, higher or lower quality thresholds as other advertisers.