• by Bill Wise , May 31, 2006

Until now, there have been two schools of thought about search customization. One school of thought says that, since search engines and bid optimizations all work on a core set of principles, you can treat every campaign--and every scenario within every campaign--as essentially the same (or at least as a variation on a theme). Then there's the opposite school of thought: since every business and every customer segment is unique, the best campaigns are customized to leverage that uniqueness.

But while it's an interesting disagreement for now, it really won't be relevant for long. Soon, Yahoo will change its auction style; search will become a lot more complex; and everyone will need to customize to better fit the client, the search audience, and a rapidly shifting search landscape.

The hybrid auction

Of the 4 major engines--Google, MSN, and the up-and-coming Ask.com--all but Yahoo use "hybrid auction" bidding. Hybrid auction bidding means your ad position is determined (primarily) by how much you'll pay per click, blended with your click-through rate. In other words, while a high CPC boosts your ad position, you pay less for a position as you get more clicks. Because getting click-throughs is largely a function of your ad copy, your copy quality and your bid price are tightly connected. Which is to say that your copywriting and copy optimization capabilities are tightly connected.

Meanwhile, click-through rates change all the time; so the price you need to pay for a given position is very hard to pin down. To catch up with that moving target, you need to be able to respond quickly to a fluctuating search environment; you also need predictive analytics to make those moving variables far more knowable.

In Yahoo, your ad position is determined solely by how much you're willing to pay--if you offer 99 cents a click for a term, you're guaranteed to appear above the guy who only offers 98 cents. Not only is your bid price not a moving target, but Yahoo actually tells you who's bidding what on any given term.

(Within both auction types, I've given a very rough sketch--there are plenty of black boxes, added variables, and sophisticated algorithms to complicate both pictures. But the basic premise remains true: in the current auction model, advertising is a lot more straightforward in Yahoo, at least for the moment.)

Because hybrid auctions offer a much more complicated environment, they also offer an environment that's far less friendly to standardized solutions. That's because the more a solution treats every scenario as essentially the same, the less it can flow with a shifting landscape; and the less it will be able to advertise to search audiences' unique interests--leaving it less capable of gaining the click-through rates that lower costs per click.

Which is why less customized search approaches can encounter trouble in Google, MSN, and Ask. On the other hand, standardized solutions tend to come out OK in the more straightforward Yahoo, because its simplicity means many situations really are comparable to one another.

Changes ahead

But the leeway that Yahoo offers won't last for long. Earlier this month, Yahoo announced its upcoming transition to the hybrid auction; so now all the major players will be operating with the most complicated auction model in town.

Of course, Yahoo's transition to hybrid is hardly the only complication facing the new world of search. With developments like MSN's demographic targeting (and Google trying to catch up with that targeting); Google video ads; and Yahoo's new relationship with eBay, look for still more complexity up ahead. We're heading into a search world that's more complicated, and requires more adaptability, than ever before. It's going to be an era where search is more difficult than ever, and where it will require more sophistication than it ever has.

I'm looking forward.