It's Over, Finished, Obsolete, Redundant ...

It

By Frank Grasso, e-Channel

Automated bid management is dead – now let's bloody well bury it!

I publicly challenge anyone to tackle me on this debate. I am ready and waiting!  I have been saying that Automated Bid Management is the root of all that is evil in Paid Search for years to anyone that would listen - but not too many have to date. 

One of the reasons for this is that bid management is perceived to control budgets and cost per acquisitions. This could not be further from the truth!

Automated Bid Management came about shortly after the birth of Paid Search and was useful at the time.  Overture (now Yahoo) and Google were nothing more than an auction system where one advertiser bid against another and the one with more money won the battle.

Automated Bid Management was innovative then but the world has moved on. In fact, if you are using automated bid management as a search solution it could be driving up your cost per acquisition and killing off your opportunity to grow market share. Let me explain why.

I will start with tackling the issue of why automated bid management drives up cost per acquisition.

In 2005 Google came out and said that the ad pricing is based on the Quality of your ad, not simply how much you are willing to pay.  Sure the bid price is and has always been a factor in the actual cost per click but it is weighted against Ad Quality factors. 

Yahoo’s Panama release also states that their ads are priced on Quality.   Google and Yahoo constantly improve these Quality factors in an effort to provide more relevant search results to their users.

Google’s recent Quality Score update has been backed by the most comprehensive and transparent explanation of their pricing I have ever seen on their site. You can read it in detail in your own time but please allow me to point out a couple of important features that could impact how much you may be paying for your ads.

The first is Google’s Description: “Quality Score is a dynamic variable calculated for each of your keywords. It combines a variety of factors and measures how relevant your keyword is to your ad text and to a user's search query”.

The key theme here is relevance and Google measure relevance by a whole range of factors (all listed on their site) but the main one is Click Through Rate (CTR). 

Google places importance on CTR because it is the only true measure they have on how appealing an ad is to their users search. They place so much importance on CTR that they also consider the historical CTR performance of every keyword and advertised webpage in your account when calculating the Quality Score for each of you keywords. 

Automated Bid Management works against this because it attempts to optimize campaigns by bidding down poor performing keywords.  This lowers the CTR of the poor performing keywords and in effect the Quality Score of all the keywords in your account, thus raising the cost you pay rather than decreasing it and as a result driving up the cost per customer acquisition rather than reducing it.

You can’t even buy your way to the top spot anymore without passing Google’s Quality Standards because the minimum price is determined by your Ad’s Quality.  Here is Google’s formula for calculating Actual Cost Per Click (CPC).

“Actual CPC = (Ad Rank to beat ÷ Quality Score) + $0.01”

They also show the following example:

“Mary's keyword has a maximum CPC bid of $2, which is lower than Tom's. However, her keyword has a higher Quality Score of 20, giving her the higher Ad Rank of 40. Mary wins the better ad position because her keyword has the higher Ad Rank.

"To determine how much she pays for a click in this position, divide Tom's Ad Rank of 33 by Mary's Quality Score of 20. Then, add $0.01. This gives you $1.66 - lower than her maximum CPC bid of $2”.

Advertiser Max CPC X QS = Ad Rank Actual CPC
Mary $2 X 20 = 40 (#1) 33/20 + $0.01 = $1.66
Tom $3 X 11 = 33 (#2) min price for auction

Automated Bid Management plays no part in controlling cost per click or cost per acquisition! Don’t be a Tom with your advertising budget, dump your Automated Bid Management software today. Be a Mary and focus on Ad Relevance and you will be rewarded in lower advertising costs and better return on investment.

If you think that I have finished bagging automated bid management you are wrong – In fact I am just warming up. Here is why automated bid management kills market opportunity.

Anyone that is interested in capitalising on market opportunity should not use bid management to run their search ads.  The reason for this is that automated bid management only considers post click factors and is sold on the basis that it will improve your ROI based on smoke and mirror algorithmic factors.

If I was a polite American I would say “what a lot of baloney” – I can’t print the Australian version of that – think Gordon Ramsey language and that is closer to what I think about that nonsense.
Automated Bid Management measures and reacts only after a click has occurred. 

The problem with this approach is that the real market opportunity is in the number of searchers not the proportion of them that went to your site.  Not everyone has the luxury of an unlimited budget, I know that, but a much smarter way to run a search engine marketing campaign is to choose a subset of keywords that you can afford and develop the most relevant and appealing campaign, as your budget will allow. 

As a wise marketing professor once told me if you can’t be the leader of your category then redefine and segment your category. You have to fight the battles you can win and be very strategic in how you do this. 

Here are some tips that will get your campaign humming:

1. Define your goals (I know many of you know this but it is an essential step).
2. Categorise your keywords by something other than product category, try purchase cycle or better still, buyer motive or intent.
3. Write at least 2 ads per keyword group (or ad group).
4. Spend your time optimizing each ad by means of split testing.

To control you budgets and costs per acquisition you can use any tracking software on the market. Google and Yahoo have free tools that do the job brilliantly.  You can and have always been able to set your budgets directly with the search engines.

The most important tip of all is:

Don’t be lured by the promise of a miracle by Automated Bid Management Vendors or search engine marketing agencies that use them.  They always sell you on the basis that it takes 3 months for their algorithmic miracle to occur.

A miracle is exactly what it would take for automated bid management to add any value whatsoever to your campaign.

For more information contact me directly:
Frank Grasso, CEO and Founder, e-channel online

www.e-channel.com.au

 

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