| 7 min read

Algorithms, Advertising, and the Ad Auction

An auction usually implies that the highest bidder wins. When advertising on a digital platform like Facebook, TikTok, or Google there is one other factor—the algorithm. Online advertisers need to understand how the algorithm works in order to find success, but the platforms don’t fully disclose exactly what the algorithm looks for. They do give us a rough outline.

How the algorithms impact advertising

Although a platform like Facebook doesn’t share the same advertising algorithm with a platform like Google, the basic way they work shares some similarities. On social media platforms, for example, the algorithm picks the ads it thinks users will be interested in seeing based on the quality of the ad, the targeting done by the advertisers, and whether or not the user has interacted with a similar type of ad before.

If you were going to advertise on traditional media like a television program, a print magazine, or a radio show, the outlet would tell you how much a 60 second commercial or a full-page ad would cost and you could decide whether or not you wanted to pay the price and advertise. Online, it’s a different story. You bid for the opportunity to advertise and the platform determines if you’ve targeted the right audience, your ad quality is high, and your target audience has responded to an ad like yours before. What’s more, the platform doesn’t really tell you how to win at the auction, you have to figure it out—the algorithm feels like a black box—even to experienced advertisers.

Ad Rank score

At Google, the auction determines whether or not the ad actually shows up in results and in which ad position it is displayed on the page. This is how Google describes how the ad auction works:

  1. When someone searches, the Google Ads system finds all the ads with keywords that match that search.

  2. From those ads, the system ignores any that aren’t eligible, like ads that target a different country or are disapproved based on a policy violation.

  3. Of the remaining ads, only those with a sufficiently high Ad Rank may show. Ad Rank is a combination of your bid, ad quality, the Ad Rank thresholds, the context of the person’s search, and the expected impact of extensions and other ad formats.

Ad Rank is where it gets a little murky. Because the Ad Rank thresholds determine whether or not you are able to compete in an ad auction, it’s important to understand what they are and how they work. Social media platforms like Facebook or TikTok use something similar, but understanding how Google looks at your ad is a good place to start.

According to Google, Ad Rank “...thresholds are determined dynamically at the time of each auction based on various factors…” If some of these factors feel subjective and unclear to you, you’re not alone. The challenge for advertisers is figuring out how their ad stacks up against the following:

  • Ad Quality: Google suggests that the goal is to maintain a high quality ad experience for consumers with lower quality ads having higher thresholds.

  • Ad Position: Ads that appear higher on the search results page have higher thresholds than ads that appear lower on the page. In other words, people are more likely to see higher quality ads higher on the page and that's where you want to be.

  • User signals and attributes: Thresholds can vary based on user attributes like where the user is located or the device they might be using.

  • Topic and nature of the search: This can vary based on the nature of the user’s search terms. For example, says Google, “..thresholds for wedding-related searches may be different than searches for basket-weaving classes.” You should expect to see higher thresholds for things that have higher search volume.

  • Related Auctions: Thresholds can also depend on the auctions for related queries. Another example from Google suggests, “Ad Rank thresholds for the search term [car insurance] could be informed by auctions for the search term [auto insurance] and [collision insurance]”.

This is how Google influences the user experience, the advertiser bids, and the value advertisers place on user engagement with their ads.

Facebook is a little different, but similar. The formula that determines whether or not an ad wins in the auction at Facebook is:

[Advertiser Bid] x [Estimated Action Rates] + [User Value] = Total Value

Ads with the highest Total Value in the auction will win and pay less for an impression (because they get more of them) and their ad is considered more valuable to the user.

Know Your Customer

Regardless of whether you're advertising on Google, Facebook, TikTok, or any of the other social media platforms, as an advertiser there are typically a couple of questions you need to ask yourself when putting an ad together. These two questions apply to any kind of advertising, particularly digital advertising:

  1. Who am I taking to? What do I know about a potential customer so I can share relevant information and speak to them?

  2. How can I convince them to act now, instead of later? Acting later, in advertising terms, usually means not acting at all.

The first question is there for a reason. In algorithm-based advertising, the more you know about your customer the better. If you really know what will resonate with them, your ad will earn a higher score and put it ahead of your competition. In addition to your bid, the better you can key into the things your customers value, the more likely you’ll find success within the auction.

What does all this mean?

There’s more to a successful ad auction than what you’re willing to pay for the ad space. The better you’re able to identify what your customers need combined with your ability to successfully bid, the more successful, and profitable, your ad will be.

The algorithms have become more and more sophisticated over the years to make it more difficult to game the system. Make your ads interesting and relevant to your audience to come out on top.

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