Adwords CPC Dips: Google Instant and Ad Pricing

I was explaining Google Instant to my housemate yesterday and had this thought1:

Are Google Ads and SEO going to be targeted on prefixes of popular words now?

For example, let’s consider the word “insurance”. There are a lot of people bidding on the whole word, and a lot of people bidding on the word “in”. Since Google Instant can show ads at every keystroke2, perhaps it would be cheaper to buy ads on the word “insura”, where the number of searches will be just as high, but since there are fewer people bidding on it, the CPC is low?

Here’s some data I pulled from Google Adwords Estimator :
cpcdips

The charts superimpose CPC, ad position(evidence of competition), Daily clicks and monthly searches for prefixes of 4 words, “target”, “insurance”, “doctor” and “lawyer”. Note the dips in the CPC at various lengths, and the fact that they’re not always correlated with ad position or search volume. I’m assuming these numbers will rapidly change over the next few months as instant search gets rolled out, uncovering interesting arbitrage opportunities for those who’re looking hard enough!

1 Disclaimer: I am not an expert on ads or auction markets, this stuff is just fun to think about.

2 While it can show ads, Adwords may not show ads based on various confidence metrics.

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What other people have to say:

I think this is worth a few research papers for the e-commerce community. From the perspective of the auctioneer (Google), designing the Adwords auction rules for this new feature will be a fun task. A couple of questions I can think of are:
1. Should they continue with the current format (where the ad results are displayed for the most “likely” words, according to my observations. For example the ad results for “ins” are the ads bid on “inspiration”)? Or should they allow bidders to make bids for “word sequence” that take into account the probability that a sequence will be in fact becoming the actual word (this is slightly different from bidding separately on 3 words “in,” “ins” and “insu” for example, at least for the current format, since the probability parts are not incorporated in these separate bids)? For example, one can bid on the word sequence “insurance” so that the bid for a substring of length n is a function that takes into account the likelihood of that string being “insurance.”
2. I think the bigger question is: Do users actually stop mid-way when typing their search term AND click on ads? If they simply choose the suggested words (and then ads will be show for the full words) should Adwords be the same since eventually the immediate ad results do not matter?
3. 1 and 2 lead to my third point: what “discount” should Google give to the interim ad auctions (since users probably do not click as frequently on interim ads)? It can simply be ONE discount parameter, but can earn/cost a lot of money.

re Quang’s #3: Cost-per-click should solve this; I’m not sure any discount is necessary.

The instant search results never show results for the prefix of a word, they show results for the full word that google predicts that you will continue typing. Google will only show the results for the prefix of characters if you hit enter.

So if you wanted your ad to show for the prefix of ‘insu’ you’d need to buy the word ‘insulin’. Once you’ve typed ‘insur’ you’ll then see results and ads for the full word of ‘insurance’. So buying the prefix of a word wouldn’t help you at all.

@anon: I would agree with your explanation, but I noticed the high CPCs & stable ad positions for prefixes of “insulin”/“insurance” show otherwise. Second, the notion of a “predicted word” is possibly influenceable — many prefixes can be legitimate predictable words, and would still trigger relevant ads. Further, looking for triggered completions that are cheaper than the full word are yet another opportunity! For example “insulin” ads could be cheaper than “insurance” ads, so you buy those instead, and still get top results when typing “insu”.

Quang: I believe Google’s solution(based on Wednesday’s Press conference) to #3 is: Hitting “Enter” to a search, or waiting for 3 seconds will count as an impression. Clicks remain unaffected. (These two metrics then lead into performance evaluations, etc.) Re: #2, I’ve found myself pausing once the found result is ranked #1 and clicking on the search result, I’d wager the same would happen with ads. For #1, you’re right, Google has indeed opened up a can of worms(which is great for research) — you’re essentially running a weighted sum of N different auctions for each keystroke! Not sure what a viable alternative model is — @bryce could be right and we don’t need to care, but this would need some sort of empirical confirmation. Hope to see some research by you guys here!

About the author:

Arnab Nandi is an Assistant Professor in the Department of Computer Science and Engineering at The Ohio State University. You can read more about him here.


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