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Google Ads is undoubtedly complex. While Google advertising offers unique opportunities to get in front of motivated and highly-targeted audiences instantly, it also has a few secrets that most advertisers don’t know about yet. As you’ll soon find out, it all boils down to the following question: how does Google earn money?
While Google pay-per-click (PPC) advertising is cheaper than a lot of other types of advertising, if you’re not careful, your ad costs can add up.
Here are a few hard truths:
In this article, we’ll outline how Google makes money from its advertisers and show you what you need to focus on for a successful campaign.
As a giant in search engines, Google has offered multiple opportunities for advertisers. As Google makes a profit from its advertisers, it also provides support, solutions to help analyze performance and automated tools to strengthen that relationship.
Google’s primary goal is to make more money. That’s why Google’s advice usually revolves around, encouraging you to spend more money – as opposed to becoming more campaign-efficient to put money into your pocket.
Google is a master at getting your business to increase ad spend. The company also is keen on getting global vendors and advertisers to engage with the platform through advertisements in order to keep its number one place in the search engine race.
As Google believes: if your business progresses, we progress.
As we’ve seen, Google Ads is Google’s money-making machine. The more advertisers spend on Google Ads, the more Google profits.
The majority of Google Ads recommendations have involved some type of account expansion. Whether through bid adjustments or keywords suggestions, many of these suggestions revolved around ensuring advertisers don’t “miss out” on displaying their ads in front of ideal target audiences.
Usually, these recommendations require advertisers to spend more, highlighting a conflict of interest between Google Ads and the advertiser.
The truth becomes clear, as Google will always profit whether your ad is profitable or not.
For advertisers who simply “set and forget” their bidding, Google’s automated bidding works wonders. Releasing control over your campaign means you’re unable to adjust bids based on your liking – which can affect certain aspects, from page rankings to impression shares.
This system also disables you from adjusting bids during favorable situations. It tends to be a good idea to increase your bids for exact match keywords. However, that isn’t possible with automatic bidding. Also, if an advertiser forgets to set a maximum cost-per-click (CPC), they could end up paying a lot more for clicks than they’d like.
To successfully use automated bidding, your account must have the following:
For Example – One of the examples of automated bidding biases can be observed on the Google Ads campaign that was set up to test two different landing pages, both in the same campaign using automated bidding. Google may stop sending traffic to the first page listed, but instead, they can send most of the traffic to the second page. It’s all up to Google how he shows your ads to the user.
Google manages and runs its own campaigns through Google House Ads. These advertisements often involve public services messages or Google product promotions. That means unless you’re willing to pay a lot more, don’t think about competing with Google in this advertisement ring.
Google runs an advertising auction system where advertisers bid on keywords. As the “auctioneer,” Google states it doesn’t set the ad prices, but that the prices are set by the market, or in other words, the collection of advertisers’ auction bids.
This position as the auction conductor or auctioneer has become the main defense to the rise in distrust towards Google’s incredible share of the search advertising market. Google’s position collapses when Google purchases house ads through Google Ads. In these situations, Google is bidding in the auction as an advertiser and running the auction at the same time, creating a serious conflict of interest.
Let’s look at this conflicting situation in more depth.
When Google places house ads in Google Ads, it doesn’t cost Google out-of-pocket. This behavior lacks verifiability – no one knows what Google is doing behind closed curtains.
Google can access information to help optimizing bidding better than any other advertiser. While that information may not be available functionally to individual employees placing bids, due to the lack of verifiability, outsiders don’t know this for sure, either.
Google auctions don’t run under the winner-take-all system. Instead, it focuses on a “second-price auction” where every bidder pays the minimum amount required to maintain page positioning. This is the amount that has been bid by the next-lowest bidder.
For a better idea as to what this looks like, imagine a keyword has been assumed with the following bids:
So, based on the second-price auction, Bidder 1 pays $0.85 per click, which is the amount Bidder 2 bid. If Bidder 1 had only bid $0.85, they would have still been the top bidder. Bidder 2 will pay $0.30 per click to remain in the second position. Although in this case bidders were charged with slightly less amount but they lost their position. So Google still made the money by lowering their position.
Now let’s look at what happens when Google enters a bid in the same auction. This reduced position can change the overall commercial value for customers who check out the links. In other words, the consumer who clicks on the second ad may come with a different profit potential than a consumer who clicks on the first ad. In a few cases, lower-placed ad clicks can be more profitable, so it’s hard to tell if this is a positive or negative situation for advertisers.
Ad placement depends on the Quality Scores of each ad – and Google has admitted they have “exceptionally high-Quality Scores.” This automatically gives them a bidding advantage over any other advertiser. However, then again, no one else can verify or audit Google’s quality scores besides Google themselves.
Google can benefit from keyword advertising other ways without undermining its auctions’ integrity.
First, Google can buy keyword ads from third parties. Google already does this regularly, including buying ads from Yahoo and Bing.
Second, as Google already does on occasion, Google can create new ad units outside Google Ads exclusively for house ads. Running ads in a separate ad unit would prevent the need for Google to compete with advertisers in an auction. However, you can imagine some advertisers still will be annoyed by any click siphoning.
Third, Google could refuse all advertiser bids on terms that Google chooses to use for house ads. Advertisers wouldn’t be thrilled if Google did this either, but it would maintain the auction integrity for those terms. This would be the most expeditious way for Google to handle objectionable organic search results, although creating a new unit outside Google Ads would work as well.
As the largest search engine worldwide, Google supports advertisers by attracting extremely relevant traffic towards their sites and ads. This makes Google trustworthy in this area. However, if you’re new to Google Ads or have just started managing advertisements, make sure to keep an eye on Google Ads’ default settings to make sure you’re not draining your budget.
Using Google Ads default settings without insight or prior knowledge can result in a drained budget. However, by changing some of these default settings, you’ll be able to minimize Google Ads expenses and increase your return on investment (ROI) in the process.
While Google claims to have a sophisticated algorithm for detecting and preventing campaign click fraud, there are situations where bots will perform better.
Even with Google, you may receive invalid or irrelevant clicks that end up drastically draining your budget with zero ROI. Refunds are only given to those marked by Google for invalid activity. Figuring out how to tackle and prevent click fraud is one of the most important tools you have for maintaining a successful campaign.
In Google policies, you’ll notice that Google mentions account suspensions for advertisers who violate any of the policies listed. However, advertisers must be aware of how much loss is on the line if the account is suspended. There’s a chance that if the advertiser creates another account, it will become suspended again.
While Google’s privacy policy claims they don’t share your data, they can share data with your consent – which you may mistakenly provide.
Google also may have the right to directly approach your clients for assistance or consultancy with their campaigns.
How does Google make money?
The answer to that question can be shocking to some advertisers. The more money you spend with Google Ads, the more money Google makes.
With that in mind, you shouldn’t assume Google ever has your best interests at heart. Google should never be blindly trusted just because of their status or the fact that they’re running the business you rely on for your advertisements.
For every step of your PPC campaign, think twice, and educate yourself with what actions you should take and why.
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