Smart Pricing: What It Is and How It Affects AdSense Publishers

I have read so much garbage online, particularly in the official AdSense Help forum, regarding Google's Smart Pricing that I thought it was time to present the real facts about it and how it affects you, as an AdSense publisher.

Before I begin, however, I need to emphasize that I have no special insider information on the topic, and Google haven't exactly been forthcoming with how Smart Pricing really works, so I am basing this post on the information that is available on the Web from official authoritative, and reliable sources.

So, let's begin by listing some of the factors that have been stated as affecting your CPC as a result of Smart Pricing:

• Publisher's location
• Visitor's location
• Web site page rank (i.e. Google pagerank) (high pagerank = move revenue, low pagerank = less revenue)
• Whether the ad is "in 'theme'" with the page it's displayed on
• AdWords advertisers using "untargeted" keywords for their ads
• And so on ... the list is endless.

There also seems to be quite a bit of confusion about what Smart Pricing even is and that it is unfair to AdSense publishers. This latter point illustrates another pet issue of mine, that many AdSense publishers seem to think they have a right to be earning from AdSense and they forget that the money they earn isn't ultimately paid by Google but by regular people like you and me . . . but I've griped about that particular issue elsewhere!

So, what can we learn about Smart Pricing? I shall begin by examining official (i.e. Google) sources.

What Google Says About Smart Pricing

AdSense Help

The first thing to note about Smart Pricing is that you will find no mention of it in AdSense's help pages. This silence, in and of itself, tells you a lot about Smart Pricing, namely, that it isn't really an AdSense issue at all, it just affects AdSense publishers. If you want to find out about it in any Google help pages, you need to look in AdWords help.

AdWords Help

There are two very important pages in AdWords help on this topic that contain key information about Smart Pricing.

First, the page entitled "Can I be charged less than my minimum bid?" states:

With Google's smart pricing, we will automatically adjust the price of a content click. If we find that an ad on a content site is less likely to produce results, we may reduce the cost of your ad below the minimum bid assigned to it.

Second, the page "Do you offer separate pricing for content clicks?" states

Google's smart pricing feature automatically adjusts the cost of a keyword-targeted content click based on its effectiveness compared to a search click. So if our data shows that a click from a content page is less likely to turn into actionable business results - such as online sales, registrations, phone calls or newsletter signups - we reduce the price you pay for that click.

So, there are a couple of vitally important gems of information in these paragraphs.

1. The fundamental principle underpinning Smart Pricing is the effectiveness of a "content click" (i.e. a click on an AdSense ad) as compared to a click on the same ad in search results (i.e. a click on Google.com or another site in the Google network).

2. Effectiveness is determined in terms of the advertiser's goals ("conversions").

Note also that Smart Pricing is also based on a fundamental fact/belief that "content clicks" are always less effective than "search clicks."

Thus, Smart Pricing is a means of ensuring that the people who are actually paying the money really get what they're paying for: effective clicks. This also has the effect of encouraging advertisers to use the content network (i.e. AdSense) so, without it, there would be less advertisements for AdSense publishers to display. Thus, even though it may not seem like it, Smart Pricing actually benefits AdSense publishers as a whole too!

Official AdWords Blog ("Inside AdWords")

The Inside AdWords blog reiterates the above points from AdWords Help in various posts.

For example, in the post "A fireside chat on content targeting" the author stated "Smart Pricing automatically discounts the amount you pay for the clicks received from content sites based on the likelihood that the click will convert."

Official AdSense Blog ("Inside AdSense")

Towards the end of October, 2006 Google published a pretty informative post on this blog with the intent of clearing up some common misconceptions regarding Smart Pricing. The post contained two key sections:

First,

Many factors determine the price of an ad . . . [m]ore than conversion rate goes into determining the price of an ad: the advertiser's bid, the quality of the ad, the other ads competing for the space, the start or end of an ad campaign, and other advertiser fluctuations.

Second,

our system for calculating advertiser pricing gets updated regularly.

I find it interesting that all of the factors that Google lists, with the exception of CTR, are advertiser related: bids, ad quality, etc. In fact, the only factor listed that is still vague enough to be open to wide interpretation is the last one, "other advertiser fluctuations." It's also important to note that the Smart Pricing algorithm "gets updated regularly" so what isn't a factor today, may be a factor tomorrow, and vice versa.

Google AdWords News Archive

In the April 2004 issue, in a section entitled "How Smart Pricing Works," you can read the following:

We take into account many factors such as what keywords or concepts triggered the ad, as well as the type of site on which the ad was served. For example, a click on an ad for digital cameras on a web page about photography tips may be worth less than a click on the same ad appearing next to a review of digital cameras. (Emphasis not in original).

Thus, we can add a couple of additional factors to our official list:

• The keywords or concepts that triggered the ad
• The type of site on which the ad was served

Other Authoritative and Reliable Sources of Information on Smart Pricing

JenSense Blog

In my opinion, the single most authoritative source of information regarding Smart Pricing outside of official Google sources is the post "One poorly converting site can 'smart price' an entire AdSense account" by Jennifer Clegg in her well-known JenSense blog.

In this post, Jennifer shares some information received by a former AdSense publisher that was, probably inadvertently, supplied by an AdSense Support staff member. The key points that Jennifer listed that are not mentioned in official sources are:

• Smart pricing affects your entire AdSense account—it doesn't operate on a per page or per site basis.
• One poorly converting site can result in smart pricing impacting an entire account, even sites completely unrelated to the poorly converting one.
• Smart pricing is evaluated on a weekly basis.
• Smart pricing is tracked with a 30 day cookie.
• Conversions for smart pricing publisher accounts are tracked by those advertisers who have opted into AdWords Conversion Tracking

By far the most significant thing here is the fact that Smart Pricing operates on your entire account. Thus, as Jennifer stated, if you have one low-performing site in your account, it can affect the return from well-performing sites. That certainly warrants some serious evaluation of your sites, if you operate more than one.

I also think the fact that Smart Pricing is evaluated weekly is significant in terms of debunking a common misconception about Smart Pricing. Smart Pricing is often cited as the reason that AdSense earnings, per click, sometimes vary significantly from day-to-day. However, if Smart Pricing is evaluated weekly, it cannot possibly affect daily fluctuations, except for the days before and after the weekly evaluation!

Finally, the fact Smart Pricing is tracked using a 30 day cookie means that your current Smart Pricing may be determined by events that happened up to 29 days ago, even though Smart Pricing itself is evaluated weekly.

Conclusion

1. Develop a site that is both valuable and whose content is well-targeted to your audience. This is more likely to lead to meaninful clicks that will result in conversions.

2. Continue to build traffic to your site—if you are going to receive less income per click, you will need to make up the difference by getting more clicks.

3. If you have multiple sites, you may be better off removing AdSense entirely from poor-performing sites. However, as Jennifer Clegg pointed out, Google doesn't really provide you with the necessary information to make such a determination.

4. Smart Pricing is a fair system for the advertiser and also ultimately benefits the AdSense publisher because, without it, more advertisers would opt out of the content network (i.e. AdSense) entirely and then where would you be?

It is my hope that this post will help dispel some of the myths and superstitions surrounding Smart Pricing and will generally provide you with a deeper understanding of both its purpose and how it works. Official Google sources have listed several factors that determine how Smart Pricing will affect you but the key principle is that of conversions for the advertiser.

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