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A new algorithm which is about to be rolled out for users of Google’s (NASDAQ:GOOG) AdWords program could boost the company’s advertising take, Bear Stearns analyst Robert Peck asserts in a short research note Friday.

In a blog post on Wednesday, Google noted that it will shortly roll out some changes in the bidding process on AdWords.

Here’s an excerpt from the blog post:

Next week, we’re launching improvements to the Quality Score algorithm that sets minimum bids for keywords in order to improve the quality of ads that we serve to our users. These changes should make it easier for high quality ads to enter the auction while also discouraging low quality ads. First, we’re improving the way that we set minimum bids for keywords where we have limited data. For example, if the system does not have any data on a keyword, we’ll try to assign that keyword a lower initial minimum bid until we have enough data to make a more accurate assessment of the Quality Score for that keyword in your account.

Second, we’re improving the Quality Score algorithm to make it more accurate in predicting the quality of all ads. This will improve the overall quality of ads that we serve by lowering minimum bids for high quality ads and raising minimum bids for low quality ads. We expect that the higher minimum bids for low quality ads will reduce the number of low quality ads we show to our users.

So, what does this mean for you? As a result of this update, you may notice that the minimum bids increase for some of your keywords and decrease for others… If you find that the minimum bids for any of your keywords increase, making your keyword inactive for search, please consider optimizing your campaign instead of raising your maximum CPC to the minimum bid. We recommend changes such as choosing a keyword that is more specific to the product or service that you offer or editing your ad text to make it more relevant to the keyword before you simply raise your minimum bid. By improving your quality we hope to provide the highest quality ads to our users while also providing you with the highest quality leads to maintain great ROI.

Peck contends the change has two implications:

  • Google will be able to monetize advertisements that were previously deactivated, driving more revenues for Google.
  • Advertisers should see a better ROI, as they will have more information to guide their campaigns.
  • Peck asserts that the algorithm update could boost Google’s consensus revenue growth in Q1 beyond the current consensus of 11.6%.

    Google Friday was up $7.61 at $469.08.

    Source: Google: New Adwords Algorithm Could Boost Advertising