By Alan Coleman on 17 May 2013
The Google AdWords auction takes place millions of times a day. Every time someone performs a search on Google, a new ad auction takes place. There are over 100 billion search queries on Google every month. That means there are almost 40,000 ad auctions per second. But how does Google decide which ads to show and where on the page to show them? This is always one of the first questions that someone who is new to Google AdWords asks.
It can be difficult to get your head around the process but this infographic published by WordStream does a great job of breaking down the different factors affecting ad position, and explaining the process step-by-step. Something which is very important to understand when looking at the ad auction is Google’s quality score metric. Quality score is Google’s way of rewarding relevant, well-optimised AdWords campaigns. Google always wants to give the user exactly what they’re looking for; this means not just giving the top ad position to the highest bidder, but allowing the most relevant advertisers a better chance to show their ad in a good position.
Once the ad positions have been determined, Google has to decide how much to charge for a click. Your keyword bid (in addition to quality score) helps to determine ad position; however you may not be charged the full amount that you bid. An advertiser pays 1 cent more than the minimum possible bid required to maintain the current ad position.
You may sometimes notice a rise in CPCs or a drop in ad position, and when this happens people often think that they have been penalised by Google for something. This is not necessarily the case. Often a change like this can be caused by some new competition who is bidding on the same keywords as you. This can cause the minimum required bid to maintain your position to rise as this new competitor may be bidding higher than the previous competition, or has a higher quality score, causing your CPC to rise. If their bid and quality score are high enough, they may even knock you off the top spot.
The important thing in this situation is to not panic; raising all of your bids without understanding what you’re doing could have a hugely negative effect on your AdWords account. It is very important to think about what you’re doing before you do it. Every action has a reaction and an understanding of AdWords and the ad auction is vital in the decision making process. 
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