How the Apple Search Ads Auction Works

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 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 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 you bid $.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.

2. You will only pay enough to beat the next best advertiser’s ad rank; sometimes you may even pay less than your specified max CPT.

• 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…