The second half of 2005 heralded the entry of msn and Ask Jeeves into the bid-based paid search space as each started breaking away from Yahoo! and Google, respectively. On the surface, this is great for search marketers, as more diversity yields more transparency and flexibility. The downside is that each keyword on each engine has its own bid-and-response metric and conversion rate. Furthermore, the ever-changing search landscape, coupled with a shortage of qualified search specialists, presents marketers with the unenviable task of hitting a bull's-eye on a moving target.
Most marketers have turned to search engine marketing (SEM) firms or advertising agencies to help solve the problem. Many of these firms employ armies of people with minimal search marketing experience and good Microsoft Excel skills to attack the challenge.
And they turn to technology. Most search solutions on the market today employ rules-based bid management, enabling marketers to set business metrics for each keyword. These rules need to be adjusted regularly to achieve the goals of the campaigns. But while rules-based bid management software is a giant leap forward from Excel, it is still fundamentally flawed for many campaigns. Most rules-based bidding strategies do not gain marketers rank in such engines as Google and msn, which have non-transparent bids. Since rank is a key determinant for impressions and click-through rates, bidding strategies in this circularly logical, non-transparent environment can seem like the online equivalent of a dog chasing its own tail.
Next Generation Search Tools
In contrast to rules-based bidding, portfolio optimization technology predicts profitability scenarios using advanced mathematical algorithms and historical data, then optimizes on the campaign level rather than on each individual keyword.
Algorithm-driven portfolio optimization technology takes advantage of inefficiencies in the bid landscape of search engines that would be impossible to discern with the human eye and equally impossible to manage for each keyword manually. While this may seem paradoxical, portfolio technology actually simplifies search marketing bid management.
Portfolio optimization can predict the effectiveness of bidding strategies on non-transparent engines like Google and self-optimize on the campaign level based on return-on-investment metrics. It determines the ideal bid/rank combination for each keyword and automatically places bids on it.
No technology can substitute for a strategy or for the oversight that an experienced human being can provide. Using portfolio optimization technology allows media managers to think strategically about paid search campaigns and shift focus to more value-added activities, such as expanding keyword lists, adjusting advertising creative, and testing landing page response rates.
Auction-Based Media is the Future
Auction-based media -- starting with search marketing -- has emerged as the most measurable and effective marketing medium available. The auction format is destined to spread to display media in 2006, further triggering the democratization of the Web by allowing small advertisers to compete head on with the IBMs of the world for targeted ad space. Marketers and their agencies will benefit -- provided they invest in the training and technology required to capitalize on the efficiencies inherent in the auction system.