• by Ellen Siminoff , August 24, 2007

Several weeks ago, I had the pleasure of speaking on a panel at the RBC Capital Markets North American Technology Conference with several online marketing experts. Our group acknowledged that paid search is becoming increasingly complex, requiring search engine marketers to use more sophisticated methods to manage their campaigns.

It was little surprise when later that day Google announced yet another change to its AdWords program, this time to the way it generates "top placement" ads, which appear above the search results instead of in the righthand column. Google said in its blog: "Advertisers often aim for top placement because they find that their ads perform the best when they appear above Google search results. We have, however, been working on an improvement to the top ad placement formula that will soon offer advertisers more control over achieving top placement while increasing the quality of our ad results for users."

Google didn't give details of the changes to its system, which normally generates top placement ads via a two-pronged formula based on the ad's Quality Score -- which measures variables like click-through rate (CTR), ad relevance, landing page quality and the cost-per-click (CPC) of the keyword. Up until now, Google considered the actual CPC when generating top placements, but will now use the maximum CPC. This means Google will bump more ads to the top placement based on the maximum an advertiser is willing to pay for the keyword -- instead of the actual cost paid. Google says this will give advertisers more control over getting their ad into the top spot, but, of course, it also encourages them to raise their maximum CPC bids, which will generate more revenue for Google.

It will take weeks for advertisers to determine the impact, if any, of the change for their overall paid search budgets and individual keyword performance. But what is immediately obvious is that Google is playing an algorithm game to maximize revenue per page. Advertisers need to act now to develop a strategy that takes advantage of this new top placement system -- and be ready in the future when Google implements further changes.

Search engine marketers who use a rules-based approach to campaign management have their work cut out for them. This strategy -- which relies on manually setting specific rules for groups of keywords (for example, "Don't bid more than $2" or "Ensure placement higher than position #3") -- requires advertisers to spend hours poring over spreadsheets and reports to determine the impact of any changes to their paid search spend. Even after they've figured out the impact, they have to devise ways of reacting to losses.

A better approach to maximizing the return on your paid search spend is to match Google at its algorithm game. Marketers should seek out solutions that automate bid management using algorithms that optimize against the variables determining Google's quality score. In addition to providing a higher ROI, effective bid management algorithms should be able to detect and self-adjust to AdWords changes in a matter of days -- automatically bidding accordingly on the right keywords and optimizing campaigns to get the best placement.

If you think paid search is complicated now, just wait until display and video ads become biddable, dozens of new auction-based ad marketplaces appear, and the data generated from campaigns becomes even more mountainous. In this not-so-distant future, it will be almost impossible for any advertiser to use rules to keep up with the complexity and data overload. Only by taking on the Google algorithm with an algorithm will advertisers be able to create and execute effective campaigns.