Google's Chief Economist, Hal Varian share some insights on the average AdWords Ads position metric:
Many advertisers are concerned about the average position of their ads. Though this metric can be useful, it's easy to misinterpret. This blog post is intended to help advertisers better understand the average position metric, its uses, and its limitations.
To begin with, it's important to understand that there're two interpretations of the phrase "ad position." The "page position" refers to the location on the page, such as "top ad 2" or "right-hand side ad 1." The "auction position" is the rank of the ad in the auction that determines the order of the ads on the page. The critical point is that the reported average position metric is based on auction position, not page position.
This means that an ad in auction position 1 will always be the first ad shown on the page, but it can occur in two possible page positions: as the first ad above the search results or as the first ad on the right-hand side when there're no ads above the search results. This distinction is important, since, on average, ads that appear above the search results tend to get substantially more clicks than ads that appear on the right-hand side. The difference between page and auction position can lead to some seemingly paradoxical outcomes.
Example showing page with top and right-hand side ads:
Example showing page with only right-hand side ads:
In summary, average position is a popular metric, but don't rely on it alone as a measure of performance. The metrics that really matter are clicks, costs, and conversions.