How do cost-per-click (CPC) ads compete with cost-per-thousand impressions (CPM) ads on the Google Display Network?
Correct Answer
CPC bids are effectively converted to CPM bids
Why is this the correct answer?
On the Google Display Network, CPC bids are effectively converted to CPM bids to compete fairly against CPM advertisers. Google calculates an effective CPM (eCPM) for each CPC ad by estimating the expected number of clicks per 1,000 impressions and multiplying by the CPC bid. This allows CPC and CPM ads to compete in the same auction on an equal basis. The ad with the highest effective CPM wins the placement, regardless of whether the advertiser is paying per click or per thousand impressions.
Why are the other options incorrect?
CPM bids are effectively converted to CPC bids
CPM bids are not converted to CPC — it is the reverse. CPC bids are converted to an effective CPM so they can compete against CPM bids in the same auction.
Ads using CPC bids are not allowed to compete on the Display Network
CPC ads are absolutely allowed to compete on the Display Network — this is a core feature of Google Display advertising.
CPC and CPM bids only compete against bids of the same type
CPC and CPM bids do not only compete against their own type — they compete together in the same auction after CPC bids are converted to an effective CPM for comparison.
Real-World Example
A retailer running CPC ads at £0.50/click with an expected 2% CTR has an effective CPM of £10. A brand advertiser bidding £8 CPM loses the auction despite bidding on a CPM basis — the CPC advertiser's eCPM of £10 wins the placement, demonstrating how both bid types compete on the same scale.