Paid Search Bid Management Systems

by David M. Raab

DM News

August, 2006

                One of my more sarcastic associates often responds “this Internet thing –it’s gonna be big” when I describe some interesting piece of Web-related software.  Although the joke has long since worn thin, his underlying point remains valid: the Internet is too important to ignore, even though many companies still haven’t adjusted to it.  (At least, I think that’s his point.  He may just like being sarcastic.)

                But taking full advantage of the Internet is not easy.  There’s a Web site to build; search engine optimization, paid search and Web advertising to drive traffic; site analysis to understand what happens once people arrive; and email campaigns for prospecting and customer relationships.  Since most companies have already developed an initial Web presence, the question is not where to begin, but what to do next.

                One likely candidate is paid search: those little clickable ads that appear next to Google or Yahoo! search results.  Marketers bid for those ads by specifying how much they will pay per response (“click”) from people who have searched for particular words and phrases. 

                Paid search is deceptively simple: you decide what an inquiry from a particular keyword is worth and you bid on it.  But once you start managing more than a handful of terms, things get complicated.  Because other people are usually bidding for the same words, you must continuously adjust your own bids to meet your volume goals without overpaying.  In addition, measuring the value of each click requires tying the clicks to actual sales or other site behaviors.  Of course, value and bids are related: you don’t want to bid more than the leads are worth.

                Software to manage pay per click advertising falls into two broad categories.  One set of products handles the mechanics of bidding for keywords across multiple search engines.  These include Dynamic BidMaximizer (www.apexpacific.com), Roffers Engineering BidRank (www.bidrank.com), Atlas Search BidManager (www.atlasonepoint.com), Direct Response Technologies Inc. KeywordMax (www.keywordmax.com) and SearchMarketingTools PPCBidTracker (www.searchmarketingtools.com).  All provide a central console to set up keywords, manage bids, and review results across multiple search engines.  They automatically adjust bid amounts and offer Web site analytics services (at extra cost) to measure the value of the resulting leads.   Costs can be as low as $200 per month to manage 10,000 keywords.  (Nearly all vendors in this market charge on monthly or annual fees, even if the software actually runs on the clients’ own system.  This entitles customers to receive updated software as the search vendors make changes to their own systems.)

                The other class of products, including SearchIgnite AdConsole (www.searchignite.com)  for an agency version or (www.adconsole.com) for smaller, self-managed advertisers, Searchforce (www.searchforce.com) and Efficient Frontier (www.efrontier.com) move beyond managing individual keywords to optimize bids across an entire keyword portfolio.  This involves using statistical algorithms that predict the performance of different bids for different keywords and comes up with a set of target bids that, taken together, best meet the advertisers’ business goals.  Pricing on these products is harder to come by but can exceed $2,000 per month for the same 10,000 keywords.

                Both groups of products integrate directly with the bidding systems of the paid search vendors.  Marketers first set up accounts with each vendor and load a list of keywords and phrases with upper and lower bids.  They then set up corresponding accounts in the bid management system, download the keywords, and add supplemental information—most importantly, a target ranking such as first, second or third in the list of ads on the search engine site.  After that, the bid management system runs on a user-specified schedule, automatically downloading fresh results and competitive bids from each search engine account, adjusting the bids to get closer to the target ranks, and uploading the new bids.  Products vary, but users can generally choose among different bidding goals such as maintaining a specific rank, making the most cost-effective bid within a range of ranks, out-bidding competitors, or barely under-bidding competitors so they spend as much as possible.  Users can also often define alternative bids to apply during days and times when less attractive visitors are likely to be active.

                Additional options are available to users who track the behavior on their Web sites.  Most bid management systems can either import results from third-party Web analysis tools or from their own Web analysis services.  These services all require users to tag their Web pages with scripts that send information about visitor sources and behaviors to a central server.  The bid management system uses this data to adjust bids to reach target sales to advertising ratios or similar goals.  Some of the Web analysis services only measure ad results, while others approach the capabilities of a dedicated Web analytics package.  Pricing for one million page views varies from $400 to $1,000 per month, with higher rates for lower volumes and lower rates for larger amounts.

                The basic bid management systems manage each keyword separately for each account with each search vendor.  Even reports are usually organized on an account basis, so seeing the performance of a single keyword across multiple accounts takes some work.  Further complicating matters, some vendors still run one system for Yahoo!/Overture keywords and another system for Google and everyone else.  The systems generally do let users assign a group of keywords to a campaign within an account and to set total spending limits per campaign.  But this still allows serious misallocations of resources, since the efficient campaigns will stop when they run out of money while less efficient campaigns continue to spend.

                The advanced bid management systems avoid this by first estimating the performance of each keyword on each site at each bid price, and then creating a package of recommended bids that produces the desired results as efficiently as possible.  The optimization may target total volume, average cost, return on investment, or other goals.  This is a much more complicated task than keyword-level management but probably worth the extra expense for marketers spending large amounts of money on many different keywords.

David M. Raab is president of ClientXClient, a consulting and software firm specializing in customer value optimization.  He can be reached at draab@clientxclient.com.