Google’s New “Automated Rules” Lets You Shoot Your Eye Out

The holiday season means one thing: incessant TV replays of the 1983 film “A Christmas Story,” where 9-year-old Ralphie wants a Red Ryder BB gun, but his mother, teacher and even the Santa Claus at the department store tell him, “You’ll shoot your eye out!” In the end Ralphie gets the gun and takes it to the backyard to shoot at a paper target pinned to a metal sheet, but the first shot ricochets off the sheet and hits him near the eye. They were right, Ralphie (almost) shot his eye out.

If you’re looking for some joy from your AdWords accounts this holiday season and beyond, Google’s new “Automated Rules” tool, which must certainly be in the running for the most-dangerous AdWords feature ever released, might only makes things worse. Automated Rules allows AdWords users to specify monetary amounts (or percentages) by which to raise or lower bids or budget limits whenever certain conditions are met. The example Google gives is if your average position is “worse than” 4.0, Automated Rules can increase your bid by, say, 20%. But like the dad in the film, Google’s Automated Rules allows users to do what they want, but gives very little guidance on how to do so in lower-risk ways that maximize return.

One thing that’s always bothered me is whose fault is it, anyway, that Ralphie hurt himself? Sure, all of the adults warned him he’d shoot his eye out, but no one instructed him how to use the gun properly, now did they? The closest was when his mother says to not shoot at “any animals or birds.” The dad gives him the gun, but not safety glasses. He helps Ralphie load the rifle, but doesn’t say to not shoot at hard surfaces nor to be mindful of his stance and to not put his finger on the trigger until he’s ready to shoot. Even manufacturers of power tools for grown adults write instruction books and put warnings on their products to tell people how to use them properly. But by giving advertisers the ability to set rules without instructions for doing so, it’s almost as if Google is trying to create a problem.

For example, imagine that there’s an isolated keyword whose profit-maximizing bid is $4 (at which point your CTR will be 6%). Higher bids will tend to result in higher position (and thus a higher CTR) and lower bids in lower position (and thus a lower CTR). Your current bid is $3.80. Let’s say that you use Automated Rules to increase the bid by 20% whenever your CTR is lower than 6% (that is, whenever your bid is less than $4) and to lower it 20% whenever your CTR is higher than 6%. Because the ad doesn’t get an enormous number of impressions per day, you decide to only run the rule once per week.

The first week, because your bid is too low, your CTR will tend to be low, so Automated Rules will raise the bid 20%, from $3.80 to $4.56. Your CTR will now tend to be too high, so your rule will drop the bid by 20%, to $3.65. You’re now actually further from the optimal bid than you were when you started!

Using this method, it will take your rule 8 weeks for the bid to reach within 5 cents of the optimum bid. Having the rule change the bid less aggressively (by 10% or 15% per week) would take even longer to reach within 5 cents of the optimal bid than changing by only 20%. Interestingly, changing the bid more aggressively (by 25% or 30% per week) would also take longer! And changing the bid around 39% per week results in an infinitely repeating pattern of bids that never reaches the optimal level.

Shouldn’t Google at least warn you when you specify a rule that has this possible behavior?

Part of the problem with AdWords Automated Rules is the lack of built-in guidance for the selection of rule conditions. Even Google’s “help page” describes only the mechanics of specifying rules, but says nothing about how to make rules function well and avoid conditions like the one I described above.

In addition to leaving out warnings, Google has also left out critical metrics like the incremental cost-per-click (ICC). In a YouTube video from 2009, Google’s chief economist Dr. Hal Varian showed how to use Google’s Bid Simulator (GBS) to calculate what he called “optimal or near-optimal bids” by finding the bid at which the ICC is equal to your value-per-click (VPC). So why doesn’t Automated Rules allow me to input my VPC and have Google use Dr. Varian’s method to calculate the optimal bid? Who in their right mind would let a rule run for months to change a bid from $3.80 to $4.00 when they could just use Dr. Varian’s method to calculate the optimal bid on the very first day?

Another problem with Automated Rules, besides the important functionality that has been left out, is the dangerous functionality that is present, like letting managers use their ads’ average position, Quality Score or CPA to change bids.

Google’s example used average position to determine when bid changes are made. But this is unwise. Say that you have an ad that’s in position 5 but you want it in position 1. You implement a rule to be run each day that says: “If average position is lower than 2.0, raise bid by $0.50.” At noon on the first day, this rule raises your bid from $0.50 to $1.00 (because your current position is 5). Your average position gets reported to you the next day as 3.0, so the rule raises the bid again to $1.50.

But what if your average position was 3.0 because you got 10 impressions in position 5 in the morning and then 10 more impressions in position 1 in the afternoon? That is, the $1.00 bid put you in position 1, so there was no need for the rule to raise your bid again. Simply because of the way you have set up the rule, you will ensure that you are overbidding for the top position.

Further, Google lets managers use their keywords’ Quality Score, but Google has confirmed several incidents in recent months where Quality Scores were simply being reported incorrectly and it is not certain that these issues have been fully resolved. Even when Google’s reporting does work correctly, Quality Scores can still change dramatically for no reason.

And Automated Rules lets managers use their cost-per-acquisition (CPA) to guide bid changes. But in a recent post Braking the Rules, I showed that, for a set of keywords which have a 5% conversion rate, using “one-half of your target CPA” and “2X your target CPA” as the conditions that prompt a bid change will cause you to change your bid unjustifiably, on average, 53% of the time.

To many (if not most) AdWords users, it is not obvious that these position, Quality Score or CPA-based rules might generate problematic behavior, but yet Google has built no safeguards into AdWords to prevent this from happening nor to warn you before it does.

Don’t get me wrong: rules-based bidding has its place in a PPC marketers toolkit, especially with newly added words for which there is little or no performance data. But managing the daily bid changes for most of your account is generally not one of them. Fail to heed that lesson and, well, you’ll shoot your eye out, kid.