We all know that AdSense is a contextual advertising solution for web publishers. It works by generating text and image-based Google AdWords ads that are relevant to site content. This content can be on blogs at places like Hubpages and Blogger, or it can be at dedicated web sites that you have set up a domain and hosting for. However, what is a real mystery is the way Google decides what it will pay you when people click on the adverts on your site. One controversial issue is smart pricing, which Google introduced to protect advertisers, but has a number of negative effects on publishers.
The official word from Google on smart pricing is that:
1. Many factors determine the price of an ad
2. Clickthrough rate doesn't affect advertiser return on investment (ROI)
3. Google doesn't make money from 'smart pricing'
4. Remember the old chestnut: "Content is King"
But really this doesn't tell us anything that is useful to us as publishers so we need to investigate the topic more thoroughly.
Basically advertisers have a Return on Investment (ROI) which they expect, and they bid on a keyword so that their ad is generated when that keyword is used. They pay what they can afford based on their required ROI, and if they don't achieve it then they will lower the amount that they pay for the ad. Google wants to charge as much as possible for an ad so it uses smart pricing to increase the ROI.
In a nutshell AdSense smart pricing is lowering of earnings per click. If you have a site with low quality traffic where your leads are clicking, but not converting then Google ill start paying less for your clicks. It is an automated system so you can't do much about it other than create good content and try to encourage high quality traffic. Once you are smart priced you will get a 30% revenue drop so make sure it doesn't happen to you!
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