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How CPT Bid and the Apple Search Ads Auction Works

Gabe Kwakyi | September 30, 2016

Learn about how the inner-workings of CPT bids and a second-price auction like Apple search ads work. Don't forget to check out our other posts on Apple search ads for the latest best practices, tips and tricks, or bookmark our Apple search ads news updates page.

After reading a well-thought out post about how to calculate a profitable CPT for Apple search ads, by iOS developer Lukáš Petr, we noticed one consideration that had been left out and explained it in a Twitter exchange. This consideration is that, while calculating a max CPT by profitability is a logical move, it ignores the consequences of doing so in a second price auction, which is how Apple search ads will operate.

The consequence is that your campaign may receive very few ad impressions, which leads to fewer taps, which leads to fewer installs. The PPC terminology for this phenomenon is to experience a low "ad impression share." In the Twitter exchange example above, if for the keyword that you bid on (racing games) there are 1,000,000 possible impressions (i.e. people searching that keyword in the app store) and you show 10,000 ad impressions, your impression share is 10,000 / 1,000,000 = 1%.

Finding longer-tail keywords with fewer advertisers competing to show ads (e.g. "games for toddlers") will increase the chance that you can earn a decent impression share even with a low CPT bid. Yet, for desirable, high volume keywords (e.g. "games") there will be a minimum "price of admission" to show an ad. The same concept applies in ASO to using keywords which have fewer apps actively ranking for those keywords.

apple search ads impression share

Apple search ads will operate similar to the Adwords auction, which is a second price model. That has three main implications as it relates to determining what CPT to bid:

  1. You only ever pay the maximum CPT that you specify. If your CPT bid is $.5, you will never pay more than $.5 per tap because you will not be eligible for auctions where the actual CPT is over $.5.

apple search ads max CPT

  1. You will only pay enough to beat the next best advertiser's ad rank; sometimes you may even pay less than your specified CPT bid.
    1. Ad rank is explained in this Adwords video, but essentially each time a user searches a keyword (e.g. racing game), every app that is actively bidding on that keyword is entered into a search auction. Each ad is assigned a score and ranked by that score in order to determine which ad shows for that user's impression (i.e. shows a search ad for racing game). The winning ad pays an amount that beats the competition, which can be high or low, depending on how much other apps are willing to pay for that keyword (i.e. their max CPTs). The less other apps are willing to pay, the lower the actual CPT is. The difference between the actual CPT (e.g. $.25) and max CPT (e.g. $.5) is referred to as the "headroom" (i.e. 50%). Headroom and actual CPTs will change for every impression because each has slightly different factors, such as the ad rank of each competitor in the auction.
    2. In an Adwords ad, several ads can show for one impression; but in Apple's case, only one ad may show for an impression. Because there is only one ad spot, the price to show ads will likely be more expensive for Apple's search ads than a typical Adwords auction (the first position in Adwords is the most expensive, but there are several other ad spots which will usually be less expensive).

apple search ads headroom between actual and max CPT

  1. The factors that influence ad rank are varied and secret (just like the keyword algorithm), but the biggest components are max CPT (what you're willing to pay per tap) and TTR (how effective your ads are at getting users to tap); your ad rank can be thought of as max CPT * TTR.
    1. Apple has indicated that each ad will also have a quality score, which has two main functions:
      1. A filter to keep irrelevant or spammy ads from showing.
      2. A discount incentive for quality ads, or a tax for ads with lower quality.

apple search ads ad rank explanation

To bring it back to the opening topic of bidding to a profitable max CPT – unless your app monetizes extremely well, it's likely that your profitable CPT will be too low to show ads. A good starting point is to CPT bid to your profitable CPT, and then slowly raise your CPT bid until you are happy with the cost and volume.

Please keep in mind that this is a very simplified explanation and that there are many other considerations at play, such as:

  • Advertisers without sufficient budget (or beyond their daily limit) are not eligible for a search auction, even if they have a high ad rank and are bidding on a keyword.
  • The effect of target filters on eligibility (i.e. if an advertiser is only targeting New York searchers looking for "productivity apps," then the advertiser is not eligible to show an ad for a person searching "productivity apps" in Minnesota).
  • Match types (search match, exact match, broad match and negative keywords)
  • Whether a max CPA is set (setting a low CPA often further reduces your ad impression share).

Stay tuned for more articles on how to effectively manage your search ad CPT bids and optimize your campaigns for better results. Also, be sure to bookmark our blog, sign up to our email newsletter for new post updates and reach out if you're interested in working with us on your search ads campaigns.

Don't forget to check out our other posts on Apple search ads for the latest best practices, tips and tricks, or bookmark our Apple search ads news updates page.


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