Keyword analysis cast in new light

Two American professors have released the results of a study which challenges the notion that the top Google Adwords positions are necessarily the most profitable for the advertiser. Could the nature of keyword analysis be about to change?

Google Adwords works on the premise that advertisers who pay the most amount of money per click receive the largest volume of traffic through to their website. [It is not always so straightforward: the algorithm also takes into account factors such as CTR (click through rate)]. The research paper “An Empirical Analysis of Search Engine Advertising: Sponsored Search in Electronic Markets,” by NYU Stern Professors Anindya Ghose and Sha Yang has built a quantitative model which aims to help advertisers undertake more targeted keyword analysis to determine the most profitable keywords for their organisations.

Ghose and Yang are experts in Web 2.0, user-generated content, keyword analysis, online advertising and e-commerce; and understanding household purchase behaviour and market competition respectively. Their study is based on a six-month panel dataset of several hundred keywords collected from a large nationwide retailer that advertises on Google.

Amongst the key findings were:

• Even though the more prominent positions on the search engine results page experience higher click-through or conversion rates, they are not always the most profitable ones. In fact, profits are often lower in the top positions than those in the middle positions due to the aggressive nature of bidding that increases the total advertisement costs (given the high click-through rates).

• The value-per-click to an advertiser decreases with each position down the search engine results page, meaning that clicks from more prominent positions are more valuable than clicks from lower positions, because conversion rates also decrease.

• Search engines are accounting for both the current period’s bid price as well as prior click-through rates of the keywords before deciding the final rank of an advertisement in the current period, but the current bid price has a larger role to play in determining the final rank than ‘Quality Score’-related factors like prior click-through rates.

• An increase in the landing page quality score of the advertiser by one unit is associated with an increase in conversion rates by as much as 22.5% and a decrease in advertiser cost-per-click.

The American keyword analysis study is the first to quantify the impact of keyword type and length, position of the advertisement, and the landing page quality on consumer search and purchase behaviour as well as on advertiser’s cost-per-click and the search engine’s ranking decision for different ads.