What the New AdWords Ad Rank Algorithm Really Means

October 24, 2013

The PPC world is abuzz with this week’s announcement that AdWords is introducing a new component to its Ad Rank formula. In the past, an ad’s position was dictated by a combination of two factors, the keyword’s Quality Score and its max CPC bid.

New Ad Rank Algorithm

Google has now thrown Ad Extensions into the mix to serve as a tie-breaker of sorts. As Google describes it, “if two competing ads have the same bid and quality, then the ad with the more positive expected impact from extensions will generally appear in a higher position than the other.” This is, by far, the biggest change to Google’s ad rank algorithm since AdWords’ inception over a decade ago. So let's take a look at what it means.

Why did Google adjust the ad rank algorithm?

For all intents and purposes, the old ad rank formula seemed to be working just fine. So why did Google rock the boat and incorporate yet another factor for advertisers to worry about? I have a few theories:

Theory #1

Google wants to give searchers the best experience possible. Remember, it is the world’s premier search engine because users trust that it will always offer the most relevant, helpful results—for both organic listings and paid ads. To encourage advertisers to adopt a searcher-centric approach, Google emphasizes Quality Score. Now, Google is taking it one step further and pushing advertisers to focus on extensions. No doubt, the incorporation of additional contact information and website links will be beneficial to searchers.

Theory #2

Sneaky as it may be, Google is slowly pushing organic results (read: profitless results) further and further down the SERP. We know that searchers are more likely to click on listings that appear above the fold. By shifting organic listings down, Google is redirecting searchers who typically opt for organic listings toward paid ads. As more advertisers enable ad extensions, the average ad size will become exponentially larger (for those in top positions). These huge, blinged-out ads will detract attention from organic listings and are likely to garner a high click volume. Google is even testing placing huge banner ads at the top of the SERP!

Ad Rank Algorithm

In the past few months, we’ve seen Google experiment with many tactics to de-emphasize SEO. This ad rank change is yet another thorn in the side of SEO enthusiasts.

Theory #3

My final theory: The new ad rank formula will increase competition in the PPC space. For Google, more competition means more revenue. Think about it this way, in order for your ad extensions to be displayed, your ad must appear in one of the top positions—a bit of a Catch 22. In order to develop positive historical data for their extensions, many companies will be clamoring for top spots. To achieve these, they have two options: either raise their bids or boost their Quality Scores. I suspect many advertisers will resort to higher max CPC bids, which is easier and faster than working to raise your Quality Scores.

Has this been Google’s plan all along?

Although advertisers are referring to this as a Google “sneak attack” of sorts, in retrospect it is clear that this plan has been teed up for quite some time.

Throughout the past six months, Google has placed a much greater emphasis on ad extensions. It all started back in February, when Google released major improvements to both Sitelink and Call Extensions. These updates gave advertisers the opportunity to establish extensions at the ad group level, allowing them to truly cater the extensions to their searchers. Along with this, AdWords released more in-depth reporting for extensions, encouraging more advertisers to utilize them.

The next hint came along a month later, when the Google policy team put out a mandate forbidding advertisers from including telephone numbers within their text ads. This forced many account managers to turn to call extensions to ensure that their contact information was readily available to searchers.

As account managers started to get comfortable with basic extensions, Google stepped it up a notch and started experimenting with a number of beta extensions. You may recall advertisers rejoicing at the prospect of Image Extensions, Review Extensions, and Offer Extensions – however, we’re still waiting on Google to make them official and available for everyone.

It’s clear that Google has long been a proponent of implementing extensions, and it’s easy to see why – they reliably increase CTR. (More clicks, more money.) The problem is that advertisers are a little too slow on the uptake. So many of us have neglected to take advantage of these “bells and whistles” that Google got impatient and had to take extreme measures. By incorporating ad extension usage into one of their most impactful calculations, Google is forcing advertisers to implement extensions, or suffer major consequences.

What does this mean for you?

This new Ad Rank calculation has already been implemented and will influence every single account that is opted into the Search Network. Whether you are a paid search expert or a fringe AdWords user, Ad Rank is a critical factor in your paid search success.

If you’re not using extensions right now, it’s time to get busy. The good news is, they require very little set-up time and minimal maintenance. Even better, they are displayed at no additional cost. To get started, head to my Google AdWords Ad Extensions Cheat Sheet.

If you’re already running ad extensions, it doesn’t mean that you’re off the hook. Remember, Google is considering the “expected impact of extensions and ad formats,” meaning that they are assessing the quality of your extensions. To boost Ad Rank, your extensions should be relevant, have strong click-through rates and appear prominently on the SERP. You are one step ahead of many advertisers because you’ve already collected performance data for your existing extensions. Keep up your momentum by optimizing your extensions now.

My parting piece of wisdom is to set up any and all extensions that are relevant to your business. In their announcement, Google explained that they will “generally show your highest performing and most useful combination of extensions and formats among those eligible.” I suspect that the more options you give them, the better off you will be!

No doubt, as SEMs begin to measure the impact of this algorithmic change, we will learn more and more about its impact. Looking forward to hearing how it has affects your accounts. Please, comment below!

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Oct 25, 2013

Ad extension cannot be a link to another website. Am I correct? The reason I am asking is that I have a group of websites for the various products we have.Please let me know

Ty Whalin
Nov 03, 2013

You are correct. You can only link to pages that are of the same website. As a matter of fact you can not use another website link in the main ad link either.

Oct 26, 2013

Theory 2 and 3 seem about right.  This may be another way for them to add another revenue stream, can't blame them for that.  I just added some extensions and did not change my bid.  Let's see what happens. 

Oct 28, 2013

HI Anoli, That is correct.  With sitelink extensions, you must link to pages that share the same domain as your ads URL.  However, each of these pages should be unique! Best of luck with your account!

Orenj Technology
Oct 29, 2013

I also learn that your reputation online or how good your content is also one of the factor for ad rank position.

Nov 01, 2013

Hi Orjenj Technology--there are a few factors that impact your ad rank.  Specifically, the maximum bid that you are willing to pay for that keyword (Max CPC), your Quality Score and now your Ad Extensions.  To a degree, the quality of your content does play into Quality Score because Google considers landing page engagement when determining Quality Scores. 

Dean Plumley
Oct 31, 2013

Thanks for another informative post which helps us get an edge on the competition. ITOnlineLearning has been using wordstreams services for over 1 years now and being and I am extremely impressed with the regular information blogs. Keep it up 

Nov 01, 2013

Thanks, Dean.  Happy to hear that our customers are fans!  If there's ever a topic you'd like us to focus on, we'd love to know :)

Adrien Bayles
Oct 31, 2013

All the 3 theories make sense to me. We could even mix them up in a logical way :Pretending to improve the searchers' experience , they increase competiton between advertisers to maximize their revenue.

Nov 01, 2013

Agreed--Google is one sneaky bastard 

Dan H.
Oct 31, 2013

Erin - Nice post.  Well thought out.  I'm concerned about the real estate on the first page of the search results.  It looks like good organic search results will be pushed to page 2.  I hope the audience becomes accustomed to this change.

Nov 01, 2013

Hi Dan--I think alot of advertisers share your concern!  It'll be interesting to see how far Google can take this before searchers start to get frustrated.  Definitely something to keep an eye on!

Dana Tan
Oct 31, 2013

Hey Erin, Great post! Whew, am I ever glad I've already enabled every extension I could possibly get my hands on. I guess now it's time to circle back and optimize those extension to make sure they are providing the best information and experience for potential searchers. I can say from personal experience that just within the last month I've boosted Quality Score significantly on one specific ad by adding relevant extensions. This has produced lower cost-per-click and higher click-thru-rates, so good for us and good for Google and good for searchers. I think it's important, particularly for folks like me who do both SEO and Paid Search, to always remember that search engines are, first and foremost, a business.

Nov 01, 2013

Kudos, Dana!  Adding those extensions will totally pay off in the long run for you.  Best of luck! 

Tara Dee West
Oct 31, 2013

It's interesting because they state that it is 'expected ad extension performance' that is considered as an ad rank factor. I'm wondering what they will base this on for new ad extensions which don't have historical data to predict performance. I imagine it might be based on industry averages or on other ad extensions within the account. Looking forward to seeing how it effects CPCs too - if you have really strong performing ad extensions will they be enough to get you into the top spot even if you're bid isn't as strong as competitors? If so, this might be a nice way to compensate in situations where you can't increase CPCs because of targets.

Nov 01, 2013

Good point, Tara.  It will be interesting to see whether Google releases more information about the new formula.  Very curious to know how they deal with new extensions...

Alex Montoya
Oct 31, 2013

This is so very helpful. As I optimize my ads and look for opportunities, I see my competition is not using this approach. Now I can get a little bit a head of them. Thanks for the news!

Nov 01, 2013

You bet, Alex!

Oct 31, 2013

Thanks for the new info. Do call extensions cost extra if you add them?

Elisa Gabbert
Nov 01, 2013

Herman, all the ad extensions are free to set up. You are, of course, responsible for the cost of any additional clicks they drive.

Nov 01, 2013

Interesting take on the way google thinks. its true that google is milking unpaid search results far more than ever now.i strongly wish for a strong competitor. monopoly in search is bad for every 1. one company cant determine what people choose! on the other side with increase of real estate on SERP, it has raised the significance of SEM in my country.tthanks for this insightful post. going to see movie enders game now..

Nov 01, 2013

Hahah, hope you enjoyed the movie, Mukesh

Nov 01, 2013

Well it surely isn't Theory #1. For about the last 6-10 months, Google's search results have often been pure crap. You search for a website designer and get a travel agency -- or 3 listings from the same travel agency.Google may be a lot of things, but a quality search engine isn't one of them.

Nov 01, 2013

There's a major point here that no one seems to be talking about. Perhaps it's because most everyone is thinking from the point of view of getting paid for their services to the business owner. Personally, I work exclusively for a small manufacturer manageing all aspects of his e-comm efforts. As the Big G gets greadier and greadier, my business owners margins continue to decrease. There seems to be a point in time, not too far off, when his ad costs will become prohibitive to running a profitable business. Most businesses cannot survive with Amazonish profit margins.Can you say "Kill the goose that lays the golden egg?"  Big G is rapidily headed in that direction!

Nov 01, 2013

Hi AnonymusSteve, I see where you are coming from--Google is definitely not looking out for the little guys!  Frustrating news for SMBs.

James Miller
Nov 20, 2013

Simple, Google wants more CASH, what company doesn't? Right now they have the power, and advertisers must adapt to it.

Rocky Singh
Dec 09, 2013

Hello….I would like to say that this blog post will really going to help all of us a lot. I would keep visiting this site for more such informational posts. Thank you.

Rocky Singh
Dec 10, 2013

I like the helpful info you provide in your articles. I’ll bookmark your blog and check again here frequently. I’m quite certain I’ll learn plenty of new stuff right here! Good luck for the next!

Dec 15, 2013

Hi,I have been reading through the Adwords help file and Google don't really say how they measure this in the Quality Score except that Ad extensions will have an impact.Having said that, I have always been using Ad extensions to gain a bigger "screen space".However, I haven't been paying attention to optimize the extensions.Your article reminds me to do that, thanks! 

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