Has Bid Management Become Obsolete?

Search marketers have long complained to the search engines that Web-based bidding interfaces are difficult to work with and third-party bid management solutions come up short. The complaints have been particularly loud from smaller and less-sophisticated search marketers. Search engines, in response, have increased automation even while becoming more complex due to additional targeting options.

Two of the big three search engines have rolled out rudimentary bid management systems. Some marketers may be tempted to rely on these tools to manage campaigns to direct-response metrics (cost per actions, or CPAs). However, the engine’s bid management technology isn’t right for everyone.

It may seem like a campaign’s success or failure hinges on killer bid management. While bid management is a campaign’s foundation, other factors can be more important. Don’t focus too myopically on bid management at the expense of other profit-enhancing tactics and strategies.

The engines’ algorithmic changes result in less clarity of the bid landscape and cause and effect of bid changes, while the implementation of API (define) charges reduces the need of overactive bid management systems. The search engine bid landscape is becoming more complex for reasons that have less to do with bidding and more to do with targeting. Complex campaigns clearly must be managed through automated means to tap their full potential. Human oversight can and will continue to play a critical role as well.

Conversion Optimizer

With little fanfare, Google launched the Conversion Optimizer, essentially a bid management product, in beta. You set a CPA and use the Google conversion tracking pixel. The system will then, hypothetically at least, manage to your CPA goal. Google describes the Conversion Optimizer as “an AdWords feature that manages your advertising costs around specific conversion goals.” Interestingly, Google has supposedly added some fairly advanced logic into its system that only some high-end bid and campaign management technologies possess. For example, many off-the-shelf bid management systems don’t factor in conversion differences by match type, geographic location, and Google network partner.

While the Google system may seem ready to rock, other Google features in your current campaign or bid management system are incompatible with the Conversion Optimizer, including Position Preference, Budget Optimizer, Site Targeting, Advanced Ad Scheduling, and Preferred Cost Bidding.

Campaign Optimizer

Yahoo’s Campaign Optimization was rolled out concurrently with Panama last February but isn’t turned on by default. It requires Yahoo’s customer solutions department to enable the feature. Similar to Google’s more recent launch, Yahoo’s system optimizes around success metrics that you set. The engine boasts of efficiency gains that are probably excessively optimistic. According to the site, “Campaign Optimization can help you spend your campaign’s budget as efficiently as possible based on your business objectives (i.e., if you want to achieve a certain cost-per-click or return-on-ad-spend figure) or guidelines (e.g., the value and importance of impressions, clicks, and conversions/revenue).”

Note to Yahoo’s legal department: the claim “as efficiently as possible” is difficult to prove, and there are some amazing third-party bidding and campaign optimization technologies that might challenge Yahoo’s assertion.

Beyond Bid Management

Google’s and Yahoo’s automated bid-management systems are one-size-fits-all solutions. But great campaign management goes far beyond managing bids. My team and I have found that even businesses in the same industry category often have significantly different success metrics and key performance indicators, so any standard tool will generally not be customizable enough.

There are many ways of writing a bid management algorithm that manages to a CPA. As someone who was intimately involved in developing one of the first bid management systems and witnessed the bid landscapes evolve, I’ve tested and incorporated dozens of different approaches into a bidding algorithm. Here are some questions to ask:

  • What level of statistical confidence do you want to be sure a system detects a conversion rate decline?
  • How rapidly do you want it to react if conditions may be trending positively?
  • If certain patterns repeat, can the system learn?
  • Does the system work as well in volatile keyword markets as it does in stagnant ones?
  • Can the system detect or test the elasticity of your marketplace to determine if upside opportunities exist at a very low incremental marginal predicted cost (slightly higher CPA)?
  • Conspiracy theorists argue that giving Google or Yahoo the ability to change bids is the equivalent of writing them a blank check (subject to budget constraints or IOs that are in place). The issue is really broader than that, because search is only part of a more complex integrated marketing plan.

    Even if these questions were answered, there are systemic questions that relate to the use of each engine’s pixel to control that engine’s spending/bidding. Each of the pixels will have a different attrition rate due to cookie deletion. That means the same metrics don’t reconcile with reality. It’s also possible to double count if the searcher uses more than one engine’s network. Media interaction effects may also be of interest as well as understanding the last click (media and search may have both been involved within the cookie’s duration.)

    Marketers with simple businesses may find there’s a fit between their bid management needs and Google’s and Yahoo’s solutions. Others will opt for pay solutions. When you evaluate bid management, remember it focuses exclusively on buying clicks. Winning at search requires not only that you buy the most profitable clicks but that you continuously refine campaigns for maximum conversion and profitability.

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