Google Finds Position Bidding Counter-Productive Too

Hal Varian, Google's chief economist posted some interesting findings about the relationship between position and conversion rates. Namely, that there isn't much of a relationship. We reached that conclusion in 2003, and co-authored a stats paper on the subject in 2005. It is funny to see the position bidding mavens jumping up and down crying foul, because this undermines the whole premise of their system. But the numbers don't lie. It is terrifically difficult to do this research and it requires a mountain of data to reach the right conclusion. It's funny that Hal only mentions QS as a complicating factor. The much larger factor is that if the advertiser's bidding system functions properly, it bids down poor performing KW and bids up great performing KW, making the top of the page look artificially better, if you're not careful with your study. Our research suggests it's not just conversion rates that remain constant but AOV as well, indicating that the people who click on ads behave largely the same way regardless of where the ad was on the page. Our research also suggests that the slightly worse performing positions Hal mentions are at the top of the page and the slightly better are at the bottom of the page. We reason that some fraction of folks click the first link or two by reflex without reading the copy and are therefore more likely to be disappointed once they get there. The folks clicking on the bottom links have either picked those ads for a reason -- they recognize and like the company, or liked the copy -- or they've already visited the sites from higher ranked ads and didn't find what they want, so the competition has already fallen away. In any case:
  1. It's pretty obvious why Google doesn't want to go on record saying position 1 converts less well than other positions -- a race to the bottom would hurt them; and
  2. Trying to avoid position 1 really is silly. The traffic value differential is very small, much smaller than the error bars around the calculation of value for a given ad, hence immaterial to performance.
Let the value of traffic drive your bids, not the position. Position bidding both wastes money AND misses opportunities.
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