Overture's Auto Bid Shifts the Gap

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Overture's 60,000-plus advertisers got an "upgrade" to their familiar DirecTraffic Center on June 26 with the introduction of an "Auto Bidding" feature.


As a reminder for search marketing beginners, Overture lets marketers bid on search keywords and phrases. When Web searchers use those words at Overture or MSN, Lycos, Yahoo and others, Overture returns results in order from the highest bidder on down.


However, because only the top positions "Premium Listings" appear on most syndicated search engines, marketers often bid aggressively to maintain reach and volume. This creates a volatile auction marketplace where advertisers need to use various means (both automated and manual) to maintain particular position and price combinations.


There are a few tips, tricks and pitfalls to using Overture's new DTC and Auto Bid effectively.


Before the system change implementing Auto Bidding, marketers worried that they were paying more than one cent over the bid of the person below them due to bid gaps. Often, because the auction market was so fluid, marketers would change bids many times daily through a combination of manual and automated means. If the bid below them was more than a penny away, marketers wanted to reduce bids to save money with no loss in position or traffic levels.


Now, they can set an "Auto Bid" within the Overture marketplace. With Auto Bid, marketers are encouraged to bid the price they are willing to pay, and the marketer will be charged one cent more than the maximum "Max Bid" of the person below them, effectively removing the old-style bid gap.


The new system encourages marketers to determine what they would be willing to pay on a per-click basis for a particular word or phrase, and bid that amount, leaving the system to manage positions based on whatever others are willing to pay. However, many longtime Overture advertisers are concerned about the new system and the behaviors it supports.


Much of the concern comes from that there always will be differences in what marketers are willing to pay. When these gaps in willingness to pay occur, they create a new dynamic in the marketplace - payment gaps. To illustrate these potentially confusing dynamics and functionality, we can explore some of the issues affecting marketers:


Max Bid versus true price.Marketers can bid either a fixed price per click or a "Max Bid," which is a reserve price. In the latter, the price they are charged is one cent above the "Max Bid" or reserve price of the next-lowest bidder. This is not necessarily one cent over the price the lower bidder actually pays. For example, if the top three max bids are $1.03, 99 cents and 84 cents, the top marketer pays $1 and the second marketer pays 85 cents if Auto Bid is enabled. Great for the second bidder.


Bid gap shift. Before the DTC change, there were bid gaps (differences in the fixed bids that were actual prices paid by marketers) in the system. There are still gaps, but they are the difference between what the marketers are paying. In the above example, under the old system, the No. 2 bidder was upset because he could have maintained the same traffic and position for only 85 cents but would have been paying 99 cents. The gap moved.


The tie bid seniority trap. In the older Overture bidding system, a tie bid was awarded to the more senior listing, giving that one the higher position. This ordinarily was considered a benefit. Now, however, the tie bid means that the older bid pays the exact price of the new bid while the other bidder often will pay less. To drop down from the senior, higher-cost position and save money at the same Max Bid, simply change a bid down and up again, resetting the seniority timer.


The bluff. The temptation to use bluffing strategies is almost immediate. This is particularly true if you are fighting a competitor over position. This bluff opportunity occurs because the top bidder pays one cent above the next-lowest max bid, not one cent higher than the price the lower bidder actually pays. For example, in a recent search for "collocation," the top bidder is bidding high ($10), probably with Auto Bid, but may not have recognized that the No. 2 bidder can call his bluff, forcing the top bidder to actually pay $10, by raising its bid maximum to $9.99. Of course, then the No. 2 bidder risks the same treatment by No. 3.


Position drift. With Auto Bidding, marketers may be tempted to change bids less frequently and not manage by position. However, post-click conversion behavior varies based on position. So, a No. 3 position that resulted in an acceptable cost per order or cost per action often no longer works in position No. 1, even at the same cost per click, due to a larger percentage of compulsive clickers. Similarly, the conversion behaviors may change between position No. 3 and No. 4, based on changes in the makeup of the Overture syndication network. Vigilance in position and bid management is rewarded under either system.


The June 26 announcement from Overture affects marketers another way. Overture plans to use a Click Index to measure conversions from impression to click. This index is an efficiency rating for their overall inventory. If a listing is low performing, it will be removed.


The effect on marketers is that prequalification copy in listings likely will result in a listing being removed. For example, a search on "lawyer" includes several results trying to prequalify by state. These listings get less-than-average clicks per impression, and may be removed regardless of bid.


Other types of listing copy also will result in listing removal because of low click-throughs. This change gives Overture an amazing level of control about which listings it chooses to include, far beyond what marketers might expect. This feature implementation is slated for late August as of press time.


Obviously, some marketers will need help with their campaigns. Several third-party services measure post-click behavior in real time and some even adjust campaigns based on the marketer's CPA/CPO.


Perhaps the best news is that this search marketing does not end with Overture. There is great inventory at FindWhat, and Google, and a type of CPC search result called trusted feed paid inclusion, which is available from Inktomi, Looksmart, Ask Jeeves and AltaVista through resellers. Even the "shopping robot" campaigns with Dealtime, Pricegrabber, MySimon and others can benefit from active measurement and ongoing optimization.


Marketers owe it to themselves to optimize their search marketing campaigns, just as they optimize other media.


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