Automated Keyword Bidding? More Like Automated Money Sink

Search Engine Marketing agencies scale not by creativity or innovation but by overhead. This is a fact that many agencies deny but is the cold hard truth. This is true even for agencies that have developed in-house technology or license technology from others.  Even the “advanced” agencies are not very sophisticated – they will use rules-based bidding that works half the time because they still require humans to double-check if they actually care about their client’s bottom-line.

With these bidding systems being rules-based, they require account managers to make customizations (I believe the term is “settings update” after hearing a recent sales pitch) depending on the account/campaign.

So what are the flaws with rules-based keyword bidding? Why is it not effective?

Most rules-based bidding can only accept a limited amount of data (no matter what search marketing agencies may sell you on) – for example: 7 day, 30 day and lifetime “snapshots” of how your keywords are progressing. The agencies will check to see your cost-per-acquisition on a 30 day period, measure how much they need to change your position based off of the last 7 days, and see whether something’s happened and your keyword needs to be paused based off of the lifetime.

It is impossible for agencies to deliver on the “100,000 keywords X 5 match types X 3 ads X multiple networks” sales pitches because it requires an enormous amount of data. Take a look at the executive team of the agencies…last I checked, an MBA does not understand machine learning. This requires a PhD from a school such as Stanford and anyone who actually knows what they are doing is working at Google and not at a search marketing agency (sorry, a PhD from a state school does not necessarily qualify as “World Class”).

If an agency wants the system to look at more data, that will require more hard-coding of rules (“look at 45 days and weight X amount”, “look at one year and weight at Y amount”,…). This approach is very flawed, because accounts may vary and some might only have 6 months and would not quality for the one year rule – others may have dramatically different cost-per-clicks and cost-per-acquisition.

Many agencies will use keyword bidding to determine a change of the keyword bid by a percentage increase/decrease which may suffice if your keywords are hovering around $1 a click. But you will see serious, volatile changes if your cost-per-click averages around $10 (I have had some accounts like this). A percentage increase/decrease can dramatically increase the bid by several dollars (versus cents) and can result in killing accounts.

Another area to watch would be when you have different cost-per-acquisitions for different products, campaigns or keywords. If you are selling various products, you might have specific margins and be able to spend up to X amount, depending on the product purchased. Rules-based systems wouldn’t be able to handle this because they are based on CPA targets.

Agencies would have to go into their “settings” and enter a ballpark number for your overall average sales  and make measurements from there. This will mean that most of your keywords will not be accurately tracking to their appropriate CPA — they will either be too low, which means you are not getting all the volume you deserve, or they are too high and you are actually not turning a profit for that sale.

So whenever you hear a sales pitch from an agency with “proprietary technology” and are ROI-focused do what I do and say “K, thanks, bye!”.

Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.

Related Topics: Channel: SEM | Paid Search Column


About The Author: Nick Abramovic helps singles meet new people at Zoosk - the largest dating application on Facebook, MySpace, Bebo and Hi5. Nick also covers affiliate marketing, advanced ppc tactics and other fun stuff at many body theory.

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  • http://claypots claypots

    Have you heard of portfolio based bidding? Rules were in vogue in 2001….

  • Chris Crompton

    I haven’t used automated bidding (except Google’s conversion optimizer), but it looks like you’ve set up a straw man. I’m sure it isn’t all or nothing with automated bidding software. Let’s say as a human there are 50 things I need to keep in mind when making bid changes… such as “don’t bid over X”, “adjust bids slowly”, “make sure you have enough data”, etc. — it isn’t unreasonable to think I could program a computer to look at the same info. As long as there are safeguards in place (such as “always require human approval when adjusting bids by more than X” ) to protect you from things you forgot to program into the system, there has to be some happy medium short of doing everything by hand.

  • nickstamoulis

    Hi Nick, I agree with 1000%. Having worked at several agencies and on the client side and more recently an owner of a small search engine marketing firm, I think you are right on the money! Since the major PPC networks have a closed bidding system, I think we will always need “humans to double-check”. Some of the automated PPC applications out there might save a little time, but what if the end result is impacted…my thought has always been the PPC data is generated by humans, so humans should manage it as well…anyway this is my 2 cents on the topic :)

  • trav2991

    Say what you want, but a solidly designed portfolio based bidding system really works, I’ve seen it myself. Sure, no automation will replace regular manual optimization – but the thousands of small bid changes an automated system can make really adds up to meaningful efficiency improvements in a large account.

  • niello

    “Even the ‘advanced’ agencies are not very sophisticated – they will use rules-based bidding that works half the time”

    The premise of your article is false, though some previous commenters have already pointed that out. I think your problem stems from the fact that you are poorly informed. For example, you say:

    “Take a look at the executive team of the agencies…last I checked, an MBA does not understand machine learning. This requires a PhD from a school such as Stanford and anyone who actually knows what they are doing is working at Google and not at a search marketing agency (sorry, a PhD from a state school does not necessarily qualify as ‘World Class’).”

    Larry Page, one of the founders of Google, has a Bachelor’s from the University of Michigan (a state school), and an honorary doctorate from there as well. He never got a Ph.D. Sergey Brin, Google’s other founder, only has a degree from the University of Maryland (another state school). Eric Schmidt, Google’s CEO, has a degree from UC Berkeley ( a state school), while Hal Varian, Google’s chief economist, has a Ph.D. from there and taught there too. (He has also taught at MIT and Stanford – two private schools – as well as the U. Mich. and the University of Oxford – two state-run schools.) Even Matt Cutts has a Bacehlor’s from the University of Kentucky and dropped out of the Ph.D. program at the University of North Carolina, Chapel Hill, to get his Masters.

    I can assure you, there are many, many people who understand machine learning very well who have gone back to school to get their MBA’s, some of whom work at Google but many of whom do not.

  • Nick Abramovic

    And the round-up…

    An SMX conference that I attended this year had not just companies present that used rules-based bidding but also had a company who provides rules based bidding speak! This didn’t go away in 2001. What only happened is these companies updated their sales pitch.

    Eric Schmidt is a CEO, he runs companies… he does not design algorithms.

    Larry and Sergey dropped out because they built a product. Sergey is such a genius that within his first six months of Stanford Grad School he already finished all of his masters level courses and was working on his PhD. Also, Sergey went to Maryland because his father was faculty.

    So what you are saying is that using mathematics from the 50s is advanced. And that my friends is exactly the reason these companies are so awful — rather than use something sophisticated they use math from the 50s because the MBAs who they sell to remember it being brought up back when they were in business school.

    Let these other advertisers waste their time by lowering their average position from 2.9 to 3.1 and end up saving 2% of their marketing budget — I’ll be spending my time improving my conversion rate by 200% allowing me to bid on whatever keyword I want at whatever price I want.

  • ppcobserver

    niello: Michigan, Berkeley etc. are top-tier research universities. I think Nick’s point is more about big talking agencies flaunting PhDs from no-name state colleges with 90% acceptance rates.

    I agree with the overall article idea. There is plenty of room to allow for bid automation in certain areas, but I’d definitely beware of agencies that push automation as a major selling point.

  • poiriem

    Sounds like you’ve had some really horrible experiences with agencies who had proprietary technology. You’re not the only one. However, that does not mean that agencies are all liars, or that you cannot automate anything of value, and that anyone who says you can is also obviously lying.


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