At the risk of having you doze off, I will note that the change involves a switch in how the formula looks at pricing, switching from actual cost per click to a theoretical maximum cost per click as set by the advertiser.
Why does this matter? Google explains that “the improved formula increases the quality of our top ads for users. This is due to more high quality ads becoming eligible for top placement, thereby allowing our system to choose from a larger pool of high quality ads to show our users.”
And why does this matter to Google investors? To answer that question, we turn to JMP Securities analyst William Morrison, who asserted in a research note Wednesday morning that the change could drive Google’s gross revenue 2%-4% higher. Morrison asserts that the new ranking methodology will drive “significant improvements” in click-through rates for queries that now have paid listings in that coveted “north position” that did not have them previously.
Morrison says his research shows much higher click-through rates for ads in that position - as much as 2x higher. By increasing the number of queries for which an ad appears in that position - Morrison figures it will affect 1%-2% of total queries - Google then should get a bump in revenue.
