Advertisers must carefully weigh pros and cons when considering whether or not to use Google and Yahoo's automated bid optimization tools. The two biggest PPC search advertising networks are getting into the campaign optimization act, Google with its "Budget Optimizer" tool and Yahoo with its "Campaign Optimization" tool. While the cost can't be beat (hint: they're free), in general marketers should avoid giving the networks the keys to the car.
In a shocking turn of events, this is one area in which Yahoo is actually better than Google. Google's Budget Optimizer increases your bids automatically to maximize click volume. They work within your budget cap, so it's guaranteed not to burn a hole in your pocket, but the best it can do is increase your click volume.
Yahoo's Campaign Optimization feature enables you to set values of none, low, medium, or high for impressions, clicks, and conversions. If you set any value other than "none" for conversions, you must give Yahoo either an ROAS target (with an average conversion value) or a CPA allowable. You also tell Yahoo your maximum bid increase percentage (how much you're willing to let them raise your bids on your best-performing keywords), and, like Google, Yahoo stays within your budget.
Don't mistake "free" for "nothing to lose," because marketers indeed have something to lose by handing over their bid optimization to the networks. The most obvious thing you lose is control. With Google's Budget Optimizer, marketers will find keywords and ads that don't garner clicks pushed further down the SERP. If they want to run an ad copy test, add negative keywords, or alter match types to bring in more clicks, they'll need to gather a high volume of clicks and impressions quickly. This is the best way to gather a statistically valid sample that can determine if these tactics have worked, and it's impossible with Google's Budget Optimizer turned on.
The problem only increases when marketers think beyond the click. Any search campaign should allocate more budget to better performing keywords, but clicks are only one aspect of performance. Clicks drive traffic, but conversions are what marketers should really be after. By letting Google put more of their budget into getting clicks, marketers may set themselves up to get more clicks that don't convert, and fewer clicks that do. Once again, optimizing poorly performing keywords to increase conversions will require marketers to turn off the Budget Optimizer.
While marketers definitely have more control with Yahoo's system, and the ability to customize a bidding methodology, it's still not enough. If you manage by ROAS, you tell Yahoo your average conversion rate and your average conversion revenue for the entire campaign. For CPA, you enter your allowable and an average conversion rate. In either case, Yahoo will still optimize around clicks, assuming that your averages are accurate.
A major problem with this approach is that you can't manage a successful campaign by averages. Buried within the averages are keywords that aren't performing well. A truly optimized campaign takes every keyword and ad into account and either attempts to boost performance or allocates budget elsewhere. Further, you'll want to identify keywords that have a higher conversion value and increase your bids exclusively on those, which you cannot do with Yahoo's feature turned on.
Marketers will also have to figure out the value and rate of alternative conversions, such as email newsletter signups and "contact us" forms into their averages if they want to bid based on the true value of every keyword. This will make the averages even more diluted, and an even less accurate representation of the campaigns true performance.
There are also general problems with both Google and Yahoo's program. If marketers want to optimize bids across all the search engines for any target other than increased clicks, they'll need a third-party technology anyway. A good third-party technology should be able to raise or lower individual bids based on performance against success metrics in close to real time. It should also be able to weight different conversion actions according to their actual, not average, business value. While this isn't free, keep in mind that in search marketing, as in life, you get what you pay for.
In time, the engines are sure to offer more advanced optimization programs like I just described. They certainly have the internal talent to build such programs, but the question is, should you use them even then? I would advise against leaving the fox in charge of the henhouse. I have a hard time imagining an advertiser approaching ClearChannel and saying: "Here, please take my marketing budget and allocate it as you see fit."
With search it's a little different because of the more reliable and accurate reporting, but even still, if marketers want to ensure that they're squeezing the greatest possible value for their media spend, they should retain control of their campaigns. They will have to spend money, but that spending should justify itself with a greater return.
