I dont think it is as sinister as everyone thinks, they will do whatever they can to ensure that they get the highest return per 1000 impressions. Its just that most people equate efficient market with the concept that if I bid higher I will be at the top. This is one of the factors, but the most important factor is what is their total return for a given number of impressions.

After having spent about 2 years spending $2-5k per month to promote my recently sold business I have a reasonable experience with how this works.

If your ad copy is way more compelling than someone elses and produces more click throughs they will rank you higher if the aggregate value of those click throughs is higher than someone else with a lower click through rate but a higher value.

ie for any given 1000 impressions 10% CTR at $1 per click = $100 rev for them and is worth more to them than 1% click through at $9 per click = $90 and they will position you in the spot that gets more clicks in that order of priority.

The best way to pay less per click is to constantly spend time optimising your ad copy by playing beat the winning copy game (ie run two adds for a few days, keep the winner and rewrite the looser to try to improve on the winner keep doing this for a few months and you have good ctr), get rid of non performing keywords that are dragging your total campaign CTR down and try to get groups of words that are tightly clustered that you can run adcopy that is very compelling just for that group and other groups have their compelling copy.

In my experience you have 24 hrs or less (depending on the impressions for those keywords) to prove you are profitable to them or they wipe you off the front screen (in a competitive market), I have also found that you need to start off with the sort of bids they tell you to, otherwise you dont get a shot at lowering the click through cost because you will never get the traffic required to spend the time optimising the adcopy.

What does annoy me is when they wont start running an ad for a keyword unless you bid a minimum amount ie not the standard lowest 5c or whatever it is now days, I have recently been forced to bid 60c-$1 per keyword just to get an add to run.

Anyway, as long as you equate efficient market with the combination that produces the best results for them you are on the right track

Appreciate an invitation to the SEO private forum, Im a geek with no technical skills reestablishing myself after selling a business, I might be able to add some value from a business experience perspective.

Thanks Mike

I always thought that there are some employees using the info they have to make good bucks for themselves, but now when we know that Google lets employees have accounts the sh*t has really hit the fan! Adwords buyers are where Google gets its billions from and they won’t be happy (just see the WMW thread)!

Actually what I worry about is Adsense, considering that’s my money they might be taking (if they are allowed to have Adsense accounts). Google employees with so much knowledge having commercial sites scares me to death!