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PPC Bid Management Misunderstanding #1: Manual Bidding vs Automation

There's an awful lot of hooey out there regarding bid management systems. Some of it is a product of limited experience ("automated bidding wastes money" claimed one recent and thoroughly misguided article). Some of it comes from irresponsible marketing blather promising to make wine from water. However, sometimes the arguments stem from genuine confusion over terminology and a failure to recognize that different strategies may make sense for different types of advertisers. This is the first of a multi-part series attempting to delineate these issues. Manual Can Be the Right Approach Setting bids by hand or relying on the engines' own bid management tools can make sense for many advertisers. Indeed, it probably makes sense for most advertisers by head count. There are two very good reasons to eschew automated bidding:
  1. There isn't enough data to make automation worth the cost. 2/3 of Google's advertisers spend less than $5K per month.
    • When the data is thin, algorithms struggle to make accurate predictions. The signal to noise ratio is too low. In fact, using Google's own bidding system can help alleviate this problem. Google's system uses conversion data aggregated across every company using Google Analytics conversion tracking. If your data is too thin they can guess at conversion rates based on others advertising on the same keywords. Using average conversion rates across multiple advertisers is an awful idea in general. Conversion rates and AOVs vary based on price, selection, brand familiarity, and site usability. However, if you have nothing better to go on, it can be better than nothing.
    • Also, if the volume of data coming in is thin, the need for and benefits of rapid responses to fluctuations in value vanishes.
  2. There isn't enough complexity in the program to justify the cost of an automated system. Simplicity can come from a variety of different sources:
    • The number of keywords needed to thoroughly cover the offerings is small. If there's no tail or midsection to speak of and only 100 keywords that matter, managing bids by hand is fairly quick and simple.
    • You're a manufacturer and the only keywords you compete on are your brand names.* If you're really only competing against your distributors you should be able to outbid them on your trademarks as you have more margin. It doesn't take a fancy algorithm to bid to the top of the page.* Manufacturers often have trouble competing with distributors on non-brand competitive search because their distributors carry their products in addition to similar products from competing manufacturers. The extensive selection gives the distributor a huge conversion rate advantage on general, product category/ sub-category related terms and can leave the manufacturer with nothing but their trademarked keywords driving traffic.
    • There's no competition. If you are all by yourself on the page, bidding is pretty simple.
Automated Bidding is Essential for Others Calculating and setting bids by hand leaves tremendous opportunity on the table for large, complex programs. The cost of automation vanishes when the programs get to be large. Companies spending more than $15K a month and managing thousands of keywords by hand are missing opportunities. There is no way to keep up with changes in performance owing to seasonality, the economy, the time of day, day of week, offers etc. across a wide array of categories. For the first year we were in business (October 2003 through 2004), we had a smart algorithm for doing bid management but no API interface through which to automate the updates. We updated bids smartly, but roughly once a week. Once the API interface was in place and we could update bids as often as we liked the performance of our client's programs improved markedly and immediately. We're not guessing that it matters, we know it matters. However, all automated bidding systems are not created equally. Setting bids smartly but infrequently by hand is certainly preferable to setting bids stupidly but frequently by machine. In the next post I'll talk about different approaches companies take algorithmically, and the confusing use of language that can make it difficult to tell who's doing what. Bid Management Misconception #2: "Bidding Rules"
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