Google Confirms Inflating CPCs: What Advertisers Need to Know

Google is currently on trial for antitrust allegations from the US Justice Department, and Google employees have acknowledged what we’ve long known about how the ad auction works: Google controls the pricing — and sometimes raises auction minimums.

Here’s a rundown of just how Google controls auction pricing and what advertisers can do to protect their own interests.

Antitrust Trial: How Google Controls Advertising Costs

The trial has focused on Google allegedly using exclusionary tactics to maintain its dominance as the world’s leading search engine. But the US Justice Department is also making the case that Google has monopolistic power over search advertising as a specific industry.

Search ads make up the bulk of Google’s massive revenue, so how Google runs these auctions has become a point of scrutiny.

Ads May Be Promoted Out of Order to Boost Revenue

During the trial, a Google executive shared that the company frequently tweaks its ad auctions in ways that can raise prices for advertisers. One method is out-of-order ad promotion, where a lower-ranked ad gets promoted above a higher-ranked ad. This allows Google to generate more revenue by showing ads in locations with higher minimum prices.

In the ad auction, Google ranks all the eligible ads competing for each ad position on the search engine results page (SERP). The highest-ranked ad usually occupies the most prominent top position.

However, sometimes the top-ranked ad may be ineligible to show in that top spot due to certain rules Google has, even though it won the top rank. For example, Google may require ads in the top position to meet certain editorial or relevance standards that the top ad does not fulfill.

In this case, rather than leave the top spot empty, Google will do an out-of-order promotion. This means they will take the next highest-ranking eligible ad and promote it out of order above the ineligible top ad.

So if ad one ranks highest in the auction but cannot show in the top position, ad two (which ranked second) may get promoted to the top spot ahead of ad one. This allows Google to still show a relevant ad in the most visible placement, while adhering to their eligibility rules.

The key takeaway is that out-of-order promotion allows lower-ranked ads to jump ahead of higher-ranked ads when those top ads break rules about where they can appear on the SERP. It ensures Google can serve ads on premium real estate while enforcing editorial or relevance guidelines.

This helps Google make more money and is beneficial to advertisers because lower-ranked ads aren’t artificially held back by editorial or other issues with higher ranked ads.

Google Ads Auction Has Reserve Prices and Thresholds

The other technique Google deploys to improve its revenue is changing auction thresholds and reserve minimum pricing. Over time, this can increase the cost for advertisers to maintain an ad’s position.

The auction minimum CPM is the lowest amount an advertiser must pay to have their ad shown in a particular ad slot. The corresponding minimum CPC bid is determined by a combination of the auction reserve price and the Quality Score of each ad. Quality Score itself is based on factors like expected clickthrough rate and ad relevance.

Remember that Ad Rank is effectively the equivalent of CPM because in simple terms, Ad Rank is predicted CTR multiplied by CPC, which is predicted CPM.

When Google asks for a minimum CPM to show an ad in a particular location, and that ad’s predicted CTR is a static value determined by AI, the only lever the advertiser can control is their bid. So long as there is headroom with their maximum CPC, Google can raise the effective CPC to meet the new CPM threshold.?

Continue reading to learn what advertisers can do to protect their ad budgets...