Overture Says Forget CPC, What's Your ROI?

Purchasing paid listings just got a whole lot more complicated — or a lot easier, depending on your perspective — thanks to changes at Overture. The company rolled out a new bidding system that will force many advertisers to think more about how much they can afford to pay to gain leads rather than how cheaply they can get those leads.

Previously with Overture, advertisers indicated the fixed amount they were willing to pay to be listed for a particular search term. Those who bid more on a term were listed above others competing for that term. Want to be listed number one for shoes? If the current top person is paying $0.20 to be there, then a bid of $0.21 would put you on top.

A few weeks ago, Overture’s system shifted in a subtle but significant way. The emphasis now is on understanding how much you are willing to pay for a particular term rather than how much you need to pay to beat others for that term.

This important change has come about through the introduction of Auto Bidding. The feature lets advertisers indicate the max bid they are willing to pay for a particular word, then have Overture automatically increase the amount they pay to get them the best position, as long as it doesn’t exceed the maximum.

Auto Bidding is a feature many Overture advertisers have wanted, because monitoring your listings to ensure you haven’t been bumped out of a prime position can be a time-consuming process — some people have thousands of listings. Generally, Overture’s major partners won’t pick up more than its top five listings. If you slip to position six, your visibility can suddenly plunge.

With Auto Bidding comes simplicity, says Overture. The message is this: Just decide how much you can afford to pay, and we’ll get you the best spot. We’ll even ensure you only pay a penny more than the maximum someone below you is willing to pay.

“The education process with our advertisers is to encourage them to understand what’s the appropriate bid to ensure they are hitting their ROI for that term, that the advertiser knows, ‘This is the maximum I can afford to pay for my bid and still make business,'” said Lisa Morita, Overture’s senior vice president and general manager of online business and marketing.

Simplicity can also be dangerous. It’s bad advice to walk into a car dealership and let a salesperson know how much you are willing to pay per month. You’ll end up with a monthly payment that fits your budget, but that may be because the total price of the car is spread out over several years. You should know how much you can afford to pay in total before talking.

Similarly with paid listings, whether at Overture or elsewhere, you need to know how much you can afford to spend and still make money. That’s the magical ROI abbreviation: return on investment. If you spend $1,000 per month with Overture and that generates $10,000 in related sales from those leads, you’ve got a good ROI. If you spend $1,000 per month and only get $500 back, you’ve got an ROI problem.

Of course, when it comes to buying cars, you not only want to know how much you can afford to pay but also how much you should be paying for a particular vehicle. However, there is no “list price” for search terms. At Overture and elsewhere, prices have been set by the market — what people are willing to pay can push the bids for a particular term up or down.

Fortunately, this is where bid gap reduction tools can help. These are designed to prevent you from paying more than you need to for particular search terms. The new one integrated into Overture’s account management system probably means the list price for many terms will rise in the short term, because it will be much easier for people to automatically leap over their competitors. However, in the long term, we may see prices settle down.

Regardless of what happens, Auto Bidding for the masses has come to Overture and will fundamentally change the way people behave. Even if Overture hadn’t provided it, third-party tools have already given some advertisers this capability. Now that everyone has easy access, a focus on ROI will be more necessary than ever to compete and succeed. Ironically, such a fundamental shift will be welcomed by Overture’s chief paid listings competitor, Google.

Like Overture, Google wants very much for advertisers to make the move from fixating on actual cost paid per click to focus instead on what they can afford to pay. This is because Google’s paid listings system is far more complicated than Overture’s.

Google ranks its paid listings by what I call the “click value” rate, the cost per click bid times the click-through rate. This makes determining the exact cost needed to get a top rank in Google extremely difficult.

“Some of the frustration is, ‘I just want to know what I have to pay to be number one,'” said Sheryl Sandberg, Google’s director of AdWords sales and operations.

The advice from Google is the same as Overture’s new advice: Know the maximum you can afford to pay, bid that amount, and our bid management tool will give you a “discount” off the “list” price any time this is available.

“Just trust us.” Those are words that arouse suspicion when they come from someone who is trying to sell you something, whether it be cars or paid listings. However, the underlying advice is sound. Knowing what you can afford to pay could help simplify your bidding strategy, and the internal bid management tools are designed to get you traffic at a discount from your maximum, where possible.

Even better, some third-party tools “close the loop,” watching how you get your traffic, what it costs, then focusing your money in the places that provide the best returns. Don’t trust the salespeople? Then you might explore these, but you’ll still need to know how much you can afford to pay.