Smart Pricing sets a click value for each ad clicked based upon a variety of factors – none of which have been made public. There has been much speculation by publishers about what these factors might include – guesses as to what is included that I’ve seen in forums include:
• site relevance (ie is the whole site dedicated to a topic or just one page?)
• Impressions (is the site well trafficked – which could indicated authority)
• site size
• Page Rank (another indicator of authority)
• Age of site (some believe that click values go up over time once Google determines whether your site is in it for the long haul)
• Inbound Link Relevancy (if lots of other sites link to you with the keywords relevant to your content – and the ads)
These factors are educated guesses – Google itself gives a little away in its statement announcing Smart Pricing to advertisers back in April 2004.
‘We’re introducing automatic price adjustments for certain clicks you get from the Google Network. Google’s smart pricing model has always provided better placement for better performing ads, and reduced the cost of a click to the least amount possible to stay above your competitor’s ad. And now, with no change in how you bid, Google may reduce the cost for a click if that better reflects the value it brings to advertisers like you.
How smart pricing works
We are constantly analyzing data across our network, and if our data shows that a click is less likely to turn into business results (e.g. online sale, registration, phone call, newsletter sign-up), we may reduce the price you pay for that click. You may notice a reduction in the cost of clicks from content sites.
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.
Google saves you time and hassle by estimating the value of clicks and adjusting prices on an ongoing basis. With improved smart pricing, you should automatically get greater value for clicks from ad impressions across our network, all with no change in how you bid.This statement indicates that site relevancy is definitely a factor which gives even more reason to develop niche blogs rather than general ones. I noticed the power of this when I first started niche blogging – my click values over time went up because ads were appearing on a site totally dedicated to the topic of each post rather than one page showing ads on one topic and another ads on another topic.
So what is the take home advice for bloggers using Adsense? Mine would simply to be aware of Smart Pricing and keep on developing quality blogs with quality content on niche topics. All of the hints that Google have given us about Smart Pricing indicate that they will only charge advertisers the higher click values when they come from relevant, quality sites – which gives a pretty good indication to me as to what type of blog I should be creating.