How much an ad's cost-per-click is determined by a number of
factors, according to the AdSense blog's explanation:

More 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.

Google denies that clickthrough rates affect the price of an ad
click, though they don't go into how much weight is put on user
action beyond the click, i.e., sales completed, forms filled out,
engagement on the site that follows. Google describes smart
pricing this way:

"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."

But observers are right also to note that the higher quality
the site, the higher likelihood the publisher gets high quality,
costlier, better-converting ads. AdSense Publisher Support pretty
much says so, reminding publishers that content is king:

"[Smart pricing] leads to higher payouts for publishers by
drawing a larger pool of advertisers and rewarding publishers
who create high quality sites... The best way to ensure you
benefit from AdSense is to create compelling content for
interested users.

"This also means driving targeted traffic to your site --
advertisers don't gain as much ROI when paying for generic clicks
as they do for quality clicks that come from interest in your
content. Good content usually equals a good experience for user
plus advertiser, which can be much more valuable than CTR."

So, this is Google's usual stance: create some relevance and we'll
help create you some revenue. Things like that have added to the
cynicism in the aforementioned forum, as one member notes the lack
of examples to test, and, without naming names, notes that some
complaining members' sites are nothing to write home about with
potential quality problems like:

* Obviously made for AdSense (which implies lack of content)
* Too many ads, including unrelated ads (lack of focus on content,
lack of central theme)
* Confusing layouts (not end-user focused)

Webmasters also reported conversations they had with the Google
AdSense team, who told them the sharp decline likely has to do
with advertiser budgets, many of which would understandably be
tightened after the holiday crunch, and perhaps even more so
during economic uncertainty.

So recession in the economy might mean recession in your AdSense
take-in, too.

An interesting frustration was also presented. Google's smart
pricing, according to forum members applies account-wide. A
webmaster with many sites but one AdSense account could experience
a hit on all of his or her sites, instead of just one or two. This
brings down the revenue potential of the more popular sites the
webmaster owns.

The suggestion, then, is that Google adjust so that smart pricing
affects individual sites and pages, rather than targeting an
entire account.

by : Jason Lee Miller