In the process, where all of the ads for a particular keyword have the same Quality Score ranking, the bidding process determines the order of presentation for those ads. The high bidder gets the best placement.
The key to Google's rich profits, though Varian doesn't refer to it this way, comes from the bidding process. "Advertisers bid for position and pay just enough to beat their runner-up. Prices for keywords are, ultimately, determined by the advertisers," he said.
As in most things in life, whoever has the most money wins. Webmasters with smaller sites competing against a richer one for the same keywords will lose each time, unless the deeper-pocketed business has a bunch of incompetents handling the bid-setting process.
The key for smaller sites in competition is the same online as it is in the physical world. One isn't going to run a small hardware store alongside a Wal-Mart and hope to beat them on price. But if they fill a niche the big competitor does not address, say for a specific tool for a unique purpose, they have a chance.
That applies to keyword buys. If you're running headfirst into the maw of a wealthier competitor, you might need to rethink your business model. All trying to outspend such a foe does is to make Google richer. Bid smart.
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