Let’s pretend Google provided Car Service. Say you needed an oil change for your car, so you head over to GoogleMart’s  automotive department.  You walk in and check out their prices, and the board says:

Standard Oil Change

Minimum Price $20

“What the heck does that mean?”  You ask the kid across the counter.  He tells you that the price listed is the least you’ll be charged for an oil change, although that price might vary.

Then he asks, “What’s the most you’re willing to pay to get your oil changed?”

“Why do you need to know that?”

The kid responds, “The GoogleMart automotive department must charge at least the minimum price for you to get an oil change, but we will charge you no more than the most you’re willing to pay.  If the most you’re willing to pay is below the minimum price, we’re not going to change your oil, but you only pay anything if we actually change your oil.  How much you’re charged depends on how much other people wanting an oil change are willing to pay.  The more you’re willing to pay, the faster you’ll get your oil changed.”

Huh. The days of “I want an oil change – here’s fifteen bucks,” are clearly over.

You reluctantly tell this perky kid that you’re willing to pay $26 at most for an oil change, and ask how long it will take.  He tells you he can only give you an estimate – one hour – but the actual order in which your car will be serviced depends on the other people who come in and want oil changes and the maximum they’re willing to pay.

“You can go shop in the store area, and we’ll page you when it’s done,” he tells you with a wink.

An hour and a half later you get paged and you walk back in where the attendant greets you: “$25.59.”  You pay, and he hands you a receipt that says:

Oil Change – $25.59

Nothing else.  You have no idea why you were charged what you were charged.

Now imagine you’re back talking to the GoogleMart attendant asking for an oil change again.  He gives you a minimum price; you tell him the most you’re willing to pay; you go out to the store; and immediately you get paged back.

You tell him, “That was quick.”  And he tells you, “You car was just evaluated.  The minimum price is $27. We can’t change your oil unless you raise the maximum you’re willing to pay to $27.”

“Waitaminute, I thought it was $20.”

“Generally it is $20, but you drive a Lexus, an oil change for a Lexus is worth more.  Your minimum price is $27.”

Anyone want a GoogleMart oil change?

The AdWords pricing system really isn’t much different from this.  I’ve read a lot of posts about disgruntled AdWords advertisers, and these are the reasons why.  In the context of an oil change, the system probably seems even less fair.  When you get charged a certain price for something, you expect to know why (if it’s possible to know why).  But AdWords has created an entirely different kind of market.  One in which they largely control costs in a behind-the-scenes fashion.  And it’s a system that changes – a lot.

Recently AdWords changed their quality score system to be calculated dynamically per query.  They’ve gotten rid of the term “minimum bids,” even though they are still very much alive.  They now list “first page bids.”  For our oil change example, you might imagine a “quick service price.”  It sounds better than “minimum price” doesn’t it?  It’s merely a switch of wording.  Since AdWords will no longer have a single minimum bid, it doesn’t make entire sense to list one, and it provides a good opportunity to get rid of the stigma entirely.  It’s a good marketing move.

So what are some of the reasons AdWords would make the move to a dynamic system?  I’m able to think of at least one reason.  In the current system, you might be broad matching a keyword that doesn’t have a high enough minimum bid to show ads.  The exact match of that keyword won’t show ads, and neither will any broad matches whose quality is based on the performance of the exact match.  That’s clearly a waste.  Some broad matches might actually fit your ad and site better, or at least have more “commercial” characteristics.

A dynamic system will allow your ads to show for those keywords.  And instead of seeing a keyword you like with “Inactive” and a big fat 0 impressions next to it, you’ll see something greater than 0.  This is actually one possible outcome of such a system; it’s really far more complex than this.  But, if I understand the new system correctly, it looks like one outcome that would be particularly attractive to Google.  Especially with the heat they’re taking about limiting distribution of ads too much in their search results,  missing out on opportunities to monetize fully on their results.  And if you think it’s easy to understand the new system by the very careful way in which Adwords talks about it in their blog post, think again.  The AdWords moderator over at Search Engine Watch is even having a bit of a hard time understanding it.  It’ll probably be hard to tell what exactly is going on until they implement it, and even then it’s likely to raise a whole lot of questions.