Anatomy of a Real Time Google PPC Auction

Every time you do a Google search, each ad spot is auctioned in real time.

This is an amazing amount of calculations: up to 11 ad spots are auctioned off simultaneously, just in time to show up on the results page. This is why if you refresh the search results page the ads will change.

Here’s how Google’s auction based advertising system works

1. create bid – you select chosen keywords and receive an estimated minimum bid. the highest bid doesn’t guarantee an ad will appear at the top of page.
2. assess quality score – Google creates a quality score for your ad based on a scale of 1 to 10. Quality score is based on relevance (how well the ad matches a user’s query), the quality of the landing page that the ad links to (content and load time), and the ad’s past clickthrough rate (if it’s new, the rate of a similar ad).
3. calculate ad position – order in which the ads will be displayed is determined by this formula: Rank = bid x quality score.
4. set price for the ad – cost of each ad is tied to the bid of the advertiser ranked below them. The final price is determined by the math formula below:

The next time you do a search on Google, checkout the ads on the page and try to guess how much each advertiser is paying per click. Then think of the amazing server infrastructure that must be used to perform these millions of calculations per day to create real time ad auctions for all web searches.

Read more about the Google Adwords real time PPC auctions at Wired.