Google has officially decided to start selling ads on a first price basis. If you’re confused as to what that means, you’ll want to read on to ensure your Google Ads bidding strategy isn’t costing you more than it should.
What is a First Price Auction in Google Ads Bidding?
The best way to illustrate first price auctions is through an example of how bidding now works on Google Ads.
Let’s pretend you’re the owner of a restaurant on Long Island, and you’re bidding on the keyword “Long Island restaurants” to bring in visitors who are searching for places to eat in the local area. You’ve decided you’re willing to pay $3 for someone to click on your ad, so you bid $3.
In a first price auction, you pay $3 when someone clicks it. Simple: you pay what you bid.
Why is this News?
The “pay what you bid” thing seems like common sense, but it was a bit more complicated previously.
Let’s get back to our example to illustrate how Google Ads bidding worked in the past. Pretend you decided that “Long Island restaurants” is worth $10 per click, so you bid $10. One of your competitors bid $5—he was the second-highest bid. When someone clicked your ad, you were only charged $5.01.
So, in the past, you could safely outbid your competition by a significant amount without necessarily having to pay a huge price. This is known as a second price auction.
Why the Move?
Google made this move to simplify the bidding process and make it more transparent, according to a blog post by Sam Cox, a product manager at Google.
The majority of other digital advertising platforms use first price auctions. So, it makes sense that Google Ads bidding has followed suit.
What Does this Mean for Advertisers?
Since you pay the price you bid, it’s no longer recommended to outbid your competition by large amounts. Rather, you should only slightly outbid them to keep your cost per click as low as possible, while still retaining a high ad position.
This will require you to pay a bit more attention to your bidding strategy and adjust it regularly. Competitors may be adjusting their bids daily now, so it’s more important than ever that you have someone who can dedicate a significant amount of time each week to monitor your Google Ads bidding strategy. Otherwise, you could burn through your budget rapidly with no results.
More Money Spent
In the short term, you’re most likely going to see your cost per click increase a bit. This will happen because, as stated before, advertisers are going to be adjusting their bids more frequently.
However, we predict that within a few months, the auction market will eventually level out, and bid wars between advertisers will settle down.