If you try to search for smart pricing in Adsense help, you will be surprised that you’ll find no subject on the topic. It is because smart pricing is an automatic price adjustment feature introduced by Google in 2004 for its AdWord advertiser with the premise to increase advertiser ROI and a more targeted result. So it’s more of an AdWord feature rather than AdSense.
It works by analyzing all related data to certain clicks. The bottom line is that Google promise its AdWord advertiser that Google will reduce the price the AdWord advertisers pay for particular click if the click is less likely to have a desired result for the advertisers. In fact Google may reduce the cost of an ad to below the minimum bid assigned to it.
The base calculation for smart pricing has never been made public by Google for the same reason the termination letter from Google is never clear. However, the fact that Google promised Its Adword advertisers a reduction in cost can only mean that the Adsense publisher will also be getting less money for certain clicks.
Because the basis for smart pricing is the effectiveness of a click, we can estimate some criteria that are possibly for this to take effect. Unfortunately the only guidance is this from Google AdWord news back in 2004
We take into account many factors such as what keywords or concepts triggered the ad, as well as the type of site on which the ad was served. For example, a click on an ad for digital cameras on a web page about photography tips may be worth less than a click on the same ad appearing next to a review of digital cameras.
From the paragraph above we can say that it based on site relevancy which includes keyword, content and everything in between. This in theory would also include the authority value of the site which inevitably leads to Page Ranking. And since it mentions websites, we can say that smart price does not defined per ad units.
That is as far info as you can get from Google. As for the rumors about one poorly converting site inside the same publisher account will affect the rest of his other sites, I just can’t find any statement to back it up apart from some story about a Google employee who was suppose to say more than he should have. It seems to me that it’s more to do with site relevancy than anything else i.e spammy MFA sites will get less value per click than good content site.
And, If Google idea is to give more value to its Adword advertisers then its even more bizarre. Say one site is poorly converting, why then the rest of other sites which may convert well get punished? They still convert don’t they? would the advertiser pay less for them? would Google punish my good sites and keep the difference?
Google uses conversion tracking which track if leads are landing on a particular page (online sale, registration, phone call, newsletter sign-up etc). It is expected that Google will then use this data historically to evaluate whether a particular click from a particular site is more likely to convert or not. Because of that the relevancy issue I mentioned above become more important and probably the biggest factor in smart pricing.
True