Google displays ads based on a formula called “Ad Rank,” which chooses the most relevant ad based on the search entered. Google announced that it just made ad extensions part of its Ad Rank formula.
Ad extensions and formats can now influence the position of your ad on the search results page. If two competing ads have the same bid and quality, then the ad with the more positive expected impact from extensions will generally appear in a higher position than the other.
Ad Rank is based not just on the overall quality of one company’s ad, but the quality of competing ads, too. The result is that if Company A’s ad — using ad extensions — gets a higher Ad Rank and is more prominently displayed, its cost-per-click will go down. But at the same time, Company B’s cost-per-click for the less prominent spot will go up. Prices, in other words, are determined not just on what companies are willing to bid but on what their rivals bid too, and competing bids can drive up costs for advertisers who aren’t paying attention to that.
In other words, it’s going to get a lot more expensive for advertisers who “lose” in Ad Rank, and in this case specifically, those who are not using ad extensions to make their ads more useful.
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