The Concept of Paid Search Auction Pliability

Not everyone who follows this feed reads all the columns over at SEL, so I thought I’d draw attention to a core concept in my recent review of Google’s new Bid Simulator tool for AdWords: PPC Auction Pliability. That is, on any given keyword, how much resistance is there in terms of bidders above and below you in the auction. Is a change in your bid likely to make a significant difference in your performance, or is it all jammed up so you’re more or less stuck where you are, assuming you understand your campaign economics?

There are many ways to optimize paid search performance. I favor an integrated array of techniques, heavy on response testing.

But the “old school” concept of finding “sweet spots” in the auction, keyword by keyword, is a nice way to do a little extra legwork to decide whether to bid higher or lower in certain instances.

It’s not always a good idea to look for so-called sweet spots, as some formal academic theory might suggest that in many cases, especially if you use enough automation, there aren’t any. But the ideal world aside, it might be nice to know if there are a lot of “bids overhanging the market,” as they say in the financial world. If a keyword auction is particularly “busy” above your bid, then you’ll have to raise your bid an awful lot for little improvement in volume.

On the other hand, if you’re stuck in between a couple of bidders but there isn’t much activity above or below them, I consider those auctions to be more “pliable.” You could go up a bit in your bid and reap volume associated with higher ad positions on that keyword. You could go down a lot and not lose too much volume (with the caveat that Google is under no obligation to serve your ad in every auction if your quality score won’t support low bids, so lowball bidding can reduce volume if Google really doesn’t want your dime that day). The more pliable the auction, hypothetically the more room you have to pick a bid strategy that suits you.

Case by case, it gets interesting. Take, for example, an account where you figure you’ve done a great job whittling average CPC’s down to 23 cents. Now on a lot of the keywords that you’re getting for 15 cents, you’re not doing great ROI-wise, but you’re reasonably content since the price is low by historic and industry standards, you don’t feel like risking the effort to go down to 11 cents.

I think the bid simulator may be helpful in helping advertisers decide when to take risks like that. Shaving those few pennies on lukewarm keywords, across several hundred keywords and a thousand clicks a day, can add up to a lot of saved cash you can then turn around and devote to better performing keywords or channels (or simply, profitability).

I’m told that the Bid Simulator is now in limited release. So despite the fact that you may see it in your account or several client accounts right now, it’s not in full release by any means. Its impact on Google’s revenues, and advertiser performance, isn’t likely to be felt until 2010.

“Old school” PPC auction jockeying may not be everyone’s idea of fun – but different strokes for different folks. We’re also keenly interested in when Bid Simulator data might be available through the AdWords API. This might be helpful for (for example) running dramatic one-day volume tests across an account, based on more keyword-by-keyword auction intelligence to help decide where to shake things up.

Related posts:

1. Google Bid Simulator
2. Decifering Google’s Quality Score
3. PPC Has Always Been the Wrong Term
4. Badly-Managed AdWords Accounts — Worse for You Than for Google