There was a lot of discussion about the smart pricing issue in the comments section of the last post about adsense earnings. That is why I decided to go back and see if Google has got something to say about this particular topic. Turned out there is a lot of information available there. What follows is my own interpretation of the content available at the adsense blog. The links to relevant articles are provided at the end of the chapter.
What is smart pricing?
Strictly speaking, smart pricing is a situation where two publishers get different income even when an identical advertisement gets clicked on identical pages.
That means if you were getting 1$ for a click on a particular advertisement on a particular page, smart pricing will result in a lower earning from the same click. When smart pricing is applied, the advertiser is required to pay a lower amount for a click. The revenue is split between Google and the Publisher remains the same.
What gives rise to smart pricing?
Smart pricing is primarily a result of lower conversion of the traffic sent by your website to the site of the advertiser. Contrary to popular belief, smart pricing is NOT a result of lower click through rate. It will help to remember that smart pricing is effectively a way to protect the interest of advertisers and while low CTR is bad for publishers, it is not bad for advertisers.
There were no documents about how to determine if a particular page is giving rise to smart pricing. However most of the over aggressive methods to increase the accidental Click through like placing the advertisement too close to the text or formatting it like text itself, may result in smart pricing. Google explicitly mentions the trick of placing too close to the action area of games may result in increased CTR but will give rise to smart pricing.
Why does Google implement smart pricing?
As stated earlier Google does not change the revenue share while implementing smart pricing and hence Google looses out on revenue as well. Then why do they implement it? That is to solve an economic problem called lemon’s problem.
Basically in the absence of smart pricing, a reputable blog like FamousBloggers and a scraper site scraping its content will earn the same money. Since the advertiser knows that it will get 2 accidental clicks from the scraper site for every 1 valid lead coming from the reputed site, it will adjust the pricing accordingly which will be too low for the reputed blog and awesome for the scraper.
If you can take away one point from this article then it has to be that while you must optimize your adsense units for better visibility, you should stay away from optimizing it for accidental clicks to earn a better income from adsense in the long run.