Google AdWords Tested

Part 2


We recently released the recording of our Google AdWords clinic. You can listen to a recording of this clinic here:

Windows Media Audio


How has Google AdWords improved? Does it still represent the leading source of high-quality pay-per-click traffic? This report examines these questions in detail and offers new insights based on our ongoing testing.

There have been a number of enhancements to the Google AdWords pay-per-click (PPC) program since we last reported on it. Most notably, they have added the “AdSense” content-based advertising system. You can review our previous reports on AdWords and AdSense in the notes at the end of this report. We have also included a link to our 46-point “Blueprint” to help you set up an effective AdWords campaign.

In addition to AdSense, Google has made a number of lesser-known improvements to their program, including conversion tracking and automatic ad optimization.

This report will briefly review our previous findings on AdWords. We will then explore how Google has enhanced its program and offer new insights we’ve discovered based on recent testing.


1. Brief Review of Google AdWords

Google AdWords, neck and neck with its competitor Overture, is the leading source of pay-per-click search traffic. Previous experiments have identified AdWords as one of the most effective means of driving qualified traffic to your website. (See the notes at the end of this report for our related experiments.)

AdWords uses a tool called the “AdWords Discounter”, which allows a busy marketer to simply select a maximum CPC rate for an entire group of keywords. The Discounter will automatically charge you the lowest CPC rate needed to maintain your highest possible position.

In our previous report on Google AdWords, we illustrated Google’s AdWords Discounter with the following chart:

scanner $0.31 $0.16 1.8
wireless $0.31 $0.00 3.9
printer $0.31 $0.29 2.9
display $0.31 $0.00 2.6
hardware $0.31 $0.29 2.3
computer hardware $0.31 $0.27 2.0
wireless network $0.31 $0.00 4.4
computer parts $0.31 $0.31 3.9
wireless Internet $0.31 $0.00 5.9
LCD monitor $0.31 $0.00 5.5
epson printer $0.31 $0.00 3.4
computer monitor $0.31 $0.00 2.8
wireless LAN $0.31 $0.00 6.4
wireless network $0.31 $0.00 3.7
KDS monitor $0.31 $0.00 1.2
OVERALL $0.31 $0.26 2.7

What You Need To UNDERSTAND: The difference between the maximum CPC bid and the actual average CPC allowed this ad group to save 19%, while maintaining the highest possible positions for individual keywords.

The AdWords Discounter (also called the “bid gap manager”) monitors the bids of all competitors for each keyword. When determining your ad position, it sets your bid FOR EACH KEYWORD at least $0.01 higher than your competition, up to your maximum bid for that group.

AdWords differs from other PPC engines (notably Overture) in that it considers both your bid AND your ad’s popularity (click-through rate) when determining your ad placement. In other words, for a given keyword phrase, it is possible to achieve a higher ad position with a lower bid if your ad performs very well.

KEY POINT: The better your ad’s CTR, the higher its position. If you have an ad that performs very well, you can pay less than a competitor for the SAME position.

2. Google AdWords Enhancements

First, AdWords has recently added the ability to track conversions of individual campaigns and ad groups. The obvious question is: “Does AdWords conversion tracking actually work?”

The short answer is yes. But the AdWords conversion tracking is not as complete as many third-party solutions.

Keep in mind the following three points when evaluating Google’s conversion tracking:

  1. When we first began testing the conversion tracking on AdWords, we noticed a number of discrepancies in the accuracy of the statistics. More recently, the statistics appear much more accurate.
  2. Implementing AdWords conversion tracking may be difficult for those with little Web-development experience.
  3. Visitors are only tracked for 30 days from initial click-through. This may understate your true ROI by not tracking conversions that occur more than 30 days after the initial visit.

Second, AdWords has added “Automatic Ad Optimization”. If you have multiple ad versions in a single group, you can allow Google to automatically emphasize those ads which have a higher CTR.

While this sounds great in principle, it can actually work against you if your lower CTR ads have a significantly higher conversion rate. Higher CTR does not necessarily guarantee high conversion (click-to-sale).

KEY POINT: Use your utmost care when experimenting with Automatic Ad Optimization. Conversion is the ultimate factor that will determine your ROI, not click-through rate.

Third and perhaps most significantly, Google has recently incorporated content-based advertising (AdSense) into its AdWords system. Our last report covered AdSense in detail:

3. Advanced Bidding Techniques

We have found that MANY advertisers round off their bids to the nearest nickel. This can present a problem. When you bid $0.10, $0.25, $0.50, and so on, you are doing exactly what many of your competitors are doing.

Most search engines grant the higher positions to the individuals who have been advertising the longest. Consider these ten advertisers for a single keyword:

Example CPC for Top 10 Positions
Position CPC
1st $ 0.80
2nd $ 0.78
3rd $ 0.65
4th $ 0.60
5th $ 0.50
6th $ 0.50
7th $ 0.50
8th $ 0.50
9th $ 0.25
10th $ 0.10

What You Need To UNDERSTAND: Your ad would be in 10th place for a $0.11 bid and 9th place for a $0.50 bid. However, for just one cent more, you would move you all the way up to the 5th spot.

Note, however, that Google does reward companies with better position if they have a higher CTR. Extensive changes to your bids may cause initial slow-downs if CTR is changed or reset.

4. Advanced Keyword Techniques

Google allows you to exercise precise control over your keywords through the use of broad/phrase/exact searches and negative keywords.

You can choose to narrow down “broad” search traffic to “phrase” or “exact” searches. By using these qualifiers, you can limit your ad impressions to the exact way the keyword-phrase was intended.

For example: a phrase match for “cheap hotels in” will only appear in a search for “cheap hotels in ……………”. However, using this same phrase as a broad search, it is possible to end up in searches for “what’s in cheap hotels” or other less relevant searches.

KEY POINT: The main advantage to using broad searches is that they generally drive the most traffic. The advantage to specifying phrase or exact searches is that they send more qualified traffic that may convert better.

Broad searches are the default setting within AdWords. To specify phrase or exact searches:

“phrase searches are placed in quotes”


[exact searches are placed in brackets]

“Negative keywords” are terms that you wish to disassociate from your keyword bids. This is useful, for example, if you want to drive traffic for the term “mouse” but not for “mickey mouse” or “mouse trap”. In this case, “mickey” and “trap” would be set as negative keywords.

Identifying a good set of commonly used negative keywords will increase the CTR for your ads. In addition, it can potentially save thousands in click charges by avoiding clicks from visitors who have no intention of purchasing your products. Why do these users click?

  1. Perhaps they misunderstood what you are selling. The most important aspect of ad copy is the title; if a customer misinterprets your title, it often doesn’t matter what the rest of the ad conveys.
  2. Often, customers are simply moving too fast. They do not take the time to pay attention to what they are clicking. If you happen to fall into the “natural clicking order” on the page, then there is an even greater chance of unintentional clicks.

KEY POINT: Use negative keywords and clear ad titles to prevent as many unintentional clicks as possible. Each accidental click costs you money.

5. Nine ways to Optimize google AdWords

In addition to the techniques outlined above, we have identified a number of good practices that can enhance the effectiveness of your AdWords campaigns:

  1. Make sure the “displayed URL” in your listings is the shortest possible URL. Even if no one clicks your ad, you are receiving brand exposure. If your domain is, do not use as your display URL, as the extra text just distracts from your brand. Simply use

    We do, however, believe it is best to use displayed URLs with the “www” in front of them (rather than just The “www” lets customers know that what they are seeing is a web address.

    Google does allow you to use some capitalization in your displayed URL. Using a URL like or may boost your brand exposure.

  2. Avoid using hype in your ads. This is especially true for products whose target market may be inherently skeptical. For more on this topic, see our report on “Transparent Marketing”:
  3. Create a sense of urgency with your ads. This can be done without resorting to hype. Phrases like “limited supply” or “reserve yours today” can be effective.
  4. A top-five position is needed to be effective, and top-three is optimal. After the first few ads, the listings all start to look the same and attracting a consumer’s attention becomes extremely difficult.

    This is not to say that lower positions won’t still drive some traffic, but expect both click-through and conversion rates to drop significantly. You may end up paying just as much for sales at lower positions because of the decreased conversion performance.

  5. While many merchants try to shoot for number-one ad placement, this is sometimes ill advised. Potential customers will often compare the first few links anyway. Are they getting the best deal? Do competitors have better products?

    If first place can be purchased for only slightly more than second or third, we do not advise against it. However, the cost gaps between first, second, and third positions are usually very large.

  6. When researching the costs of jockeying up in position, don’t overlook the potential savings of moving down slightly in position. You will often find that you can move from (for example) 4th to 3rd for only a few cents, but you may be able to drop from 4th to 5th and benefit from significant savings.
  7. If a desired keyword is too expensive, try to break that keyword down and go after words that are more specific. Identify words that may not receive as much traffic but can be purchased for less money.
  8. Don’t overlook AdWords’ geo-targeting features if your products or services could benefit from a precise geographic targeting. Google offers state, city, and customized targeting. More details are available at:
  9. Finally, review the suggestions from our first (two-part) Google AdWords report here:

Google AdWords accounts can be created at:


Related MEC Reports:

Google AdSense Tested:

Google AdWords Select Tested:

Google AdWords Timeline (Word Document):

Google PageRank Tested:

Overture Tested:

Small PPC Engines Tested:

Five Pay Search Engines:

Transparent Marketing – How to Earn the Trust of a Skeptical Consumer:

Literature Review

As part of our research, we have prepared a review of the best Internet resources on this topic.

Rating System

These sites were rated for usefulness and clarity, but alas, the rating is purely subjective.

* = Decent ** = Good *** = Excellent **** = Indispensable

Google AdWords: Best Practices ****

Campaign Optimization under Google’s Smart Pricing ***

Google’s Regional Targeting Power ***

Think Negative ***

How Search Engines Make Money ***

Google Unveils “Smart Pricing” for Contextual Ads **

AdSense Makes Much More Sense **

Google Launches Official Blog, Not Blog Search **

GoogleBlog **

Smart Pricing for Contextual Ads at Google **

Google Provides Tighter Localization **

Google Introduces New Pricing **

Up Close with Google AdWords **

Pass Out the Cigars for Google’s New Baby: AdWords Select **

SearchDay: Google Launches AdWords Select **

Google’s Overtures at Overture’s Advertisers **

Google Takes On Overture with Pay-Per-Click Ads **

Google Changes the Pay-Per-Click Landscape with AdWords Select **

Google AdWords: Sublime Poetry? **

The Google AdWords Happening **

Overview of Pay-For-Placement **

Google AdWords Select Report **

About This Brief


Editor — Flint McGlaughlin
Writer — Brian Alt
Contributor — Aaron Rosenthal
HTML Designer — Cliff Rainer

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