What is particularly interesting about the post is where the description differs from the theory. For most Web advertising auctions, advertisers are ordered by (bid * CTR), where CTR is the clickthrough rate on the advertisement. The net effect is that people end up paying per impression, for the space used on each page, which is what publishers generally want.
However, Hal spends quite a bit of time talking about Google's use of "Ad Quality Score". He indicates that, in addition to CTR, Google uses the "quality of [the] landing page" and the "relevance of the ads and keywords in the ad group to the site" as well as "other relevance factors", but details are not clear.
On the one hand, some kind of ad quality score makes a lot of sense. The CTR for a given advertisement shown in a given context to a given user can only be estimated. So, the use of "Ad Quality Scores" could be viewed as an attempt to get a more accurate estimate of the CTR.
On the other hand, this kind of looks like something tossed on top of CTR to penalize spammers or other lower quality advertisers. If that is the case, it becomes less clear what this change could do to the efficiency of the auctions.
Either way, whether it fits into a framework of getting better CTR estimates or it is a patch to fix a market failure in current advertising auctions, Hal's post is something to think about further.
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