Introduction to the Google Ad Auction

Our Chief Economist, Hal Varian, explains the AdWords Ad Auction and how your max CPC bid and quality score determine how much you pay for a click on

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  1. creamnblack says:

    Really really interesting.

  2. jimjim says:


    Yes but this was just for illustration. It doesn’t happen in a real auction or if it does that spot would be pushed so low that it doesn’t get any clicks.

  3. altasmarketing says:

    Did any one notice that the lowest quality score in this example got the lowest CPC?

  4. RedBullEdit says:

    Anyone else notice the stain on the guys shirt?

  5. activecx says:

    Very helpful, thank you.

  6. oriol1986 says:

    Really, really clear. Thanks for the vid 🙂

  7. xchibimarukox says:

    really st. forward explaination…XD

  8. uhohlookwhoshere says:

    @aworden Read about “Vickrey Auctions” on Wikipedia. It will explain why the bidder does not pay the exact amount they agreed to. About the ad ranking algorithm, I’m sure it’s extremely complex and uses many more variables then the ones mentioned.

  9. aworden says:

    First, why on earth would they multiple the bid by the quality score? That’s just plain dumb. If a customer agrees to pay x per click, then charge that! Stop confusing your customers with a ‘black box’ payment model.

    Secondly – it can’t be this simple or new ads (with no click thru coz they’re new) would never get displayed because their quality score would be so low.

  10. BPLMarketing says:

    Nice straight-forward explanation – thank you.

  11. casanovamit says:

    Very well explained. I am a newbie in this field and this tutorial is really helpful.

  12. mdwebcon says:

    What can I say. He is the best. I have read his books „Intermediate Microeconomics“ and „Microeconomic Analysis“. Thank you for sharing the information. I have one question concerning the quality score. Are you using 60% for CTR, 30% for Relevancy and 10% for Landing Page to calculate the Quality Score?

  13. creep276 says:

    Nice improvement. I just won a new laptop on yesterday. Will be trying out the new improved software as soon as it arrives.

  14. pavkey88 says:

    Explained PERFECTLY. Well done

  15. BlueCrabMedia says:

    This is a great straight forward approach to ad auction..

  16. crepepariscafe says: sells everything between 0% – 8%. An iPad or Laptop is $40 bucks. They also offer $5 for every customer referral.

  17. stephroberts85 says:

    This is a brilliant introduction to ad words and makes it so clear and easy to understand. This tutorial really helped, and is really useful in explaining how it all works, especially in relation to cost. The only thing i would say is that it would be helpful if it explained how to increase your quality score.

  18. ifind2com says:

    I got the Flash Player working on my iPhone and iPad, downloaded it from there is also auctions with 3 winners and an iPad is under $40 bucks.

  19. mbw82ag says:

    @Nasdaq7 Google Business has another video where they repeat that QS is not affected by Match??? Go figure

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  21. IKingMegaman says:

    2:33 for quality score

  22. SamediaMarketing says:

    Great Upload – Thanks For Sharing

  23. SolarControlLLC says:

    Mr. Varian does a great job explaining the basics of Google’s Ad Auction.

  24. MTT2RC says:


  25. AnalynBucabal says:

    Since everybody is keen in articulating their particular non-sense, I just want to say that this is probably the simplest and best explanation about how cost-per-click (CPC) bid and Quality Score work.
    I know that because of the readers’ comments, not because I had actually watched the video.
    But I will. Soon. Now.
    I also want to say that this a (temporarily) hacked account, so don’t bother to reply.