Manage AdWords Like a Mutual Fund with New Preferred Cost Bidding Feature

Tuesday, April 17th, 2007 by Andy Beal

Manage AdWords Like a Mutual Fund with New Preferred Cost Bidding Feature

One of the things that I like about Efficient Frontier’s pay-per-click services is their “marketplace” approach to managing campaigns. You effectively tell them what your end goal is (ROI etc) and they manage your PPC campaign, like a financial portfolio, to achieve your goals.

Google AdWords has gotten wind of this simplistic approach to managing a PPC campaign with their launch of a “preferred cost bidding” feature.

Preferred cost bidding allows advertisers to specify the average price they would like to pay per click (a preferred CPC bid) or per thousand impressions (a preferred CPM bid) and let AdWords automatically work to achieve the targeted price.

I spoke with Google AdWords Product Manager, Guemmy Kim, who told me they had recognized “a market for this kind of control” and that preferred cost bidding would bring “more stability” to the costs of paid search.

Preferred cost bidding is designed to be an alternative to CPC or CPM and advertisers can opt in at a campaign or ad level. With today’s launch, only a subset of advertisers will have access to the new feature, but Kim says that all AdWords advertisers will have access by the end of next week.

While experience search marketers will prefer to manage their ads on a more micro level, this addition is a great option for those who have limited time and money to actively manage their AdWords campaign.

UPDATE: Here’s the official announcement

Want more marketing news & views? Follow Marketing Pilgrim's Andy Beal on Twitter!

Share this post

7 comments on “Manage AdWords Like a Mutual Fund with New Preferred Cost Bidding Feature”

David Dalka Says:

April 17th, 2007 at 12:22 pm

Interesting, maybe Google should be hiring people with heavy investment management backgrounds to manage these types of B2B initiatives in sales in marketing as it’s the skill set that will become more and more important, especially as we migrate to the even more complex area of mobile search marketing.
Jeremy Luebke Says:

April 17th, 2007 at 1:12 pm

I don’t really see how this is much different than what is already in place. You are still bidding on a CPC basis.

They need something that lets the user adjust based on ROAS & Cost Per Conversion.
Marios Alexandrou Says:

April 17th, 2007 at 3:23 pm

Jeremy,

The difference is that this new option allows any individual click to cost more than your max CPC as long as the average CPC for all clicks is no more than your max. It’s a potentially useful feature, but one that you’re effectively already doing if you analyze your data and optimize it based on the results you’re seeing.
» Google komt met nieuwe gemiddelde cost per click model » Zoekmachine Marketing Blog Says:

April 17th, 2007 at 3:54 pm

[...] Dat Google hier gebruik zou maken van portfolio management technieken voor het optimaliseren van campagnes, zoals gesuggereerd door Andy Beal, lijkt me een stap te ver gezocht. In dit geval zou Google aan een systeem aan het bouwen zijn dat het de beste portfolio voor elke individuele adverteerder kan voortbrengen. Zo’n systeem op de beurs waar niemand verliest en iedereen maar wint zo fantastisch zijn, maar utopisch. Zolang je maar genoeg en lang genoeg adverteert zou iedereen gelukkig gemaakt kunnen worden. Het is in ce in tegenstelling tot de basis van hun systeem, de biedingen. Google heeft al verschillende pogingen achter de rug om Adwords te vergemakkelijken voor leken. Maar vanzelfsprekend is dit in tegenstelling tot de steeds uitgebreidere functionaliteit in het targetten van je doelpubliek. Het ‘tunen’ van Google campagnes is specialisten werk, waarbij periodieke analyses en bijsturingen nodig zijn. [...]
Chris Zaharias (Efficient Frontier) Says:

April 17th, 2007 at 4:59 pm

[I'm SVP Strategy at Efficient Frontier]

We at Efficient Frontier noticed this announcement today and don’t think it does much to help advertisers arrive at efficient PPC campaigns (’efficient’ defined as achieving the optimal return across a keyword set & for a defined set of business goals and/or constraints). Here’s why:

CPC is but one factor – assuming for a second that Google’s preferred cost bidding feature actually works, you still have to consistently build an accurate understanding of what preferred CPC yields what number of impressions, clicks and conversions. Preferred Bidding (if it works, more on that below) doesn’t attempt to control impressions, clicks or conversions (collectively known as *what really matters*); all it really does is *control your CPC*. That and 50 cents will get you a cup of coffee.

CPC control, but at what cost? – I will bet you a dollar against a penny that gaining control over effective CPC will come at a cost of losing whatever control you might have previously had over impressions (ad exposure), # of clicks and conversion value of those clicks. The Adwords ranking algorithm is a yield management system, so if the CPC you *prefer* is different from the effective CPC your max CPC currently yields, guess what? You’ll get move or less impressions, # of clicks and ultimately conversions.

So really, you’re still dealing with an opaque marketplace within which you need to leverage historical and actual impression, click, cost, revenue and [sometimes] margin data to build your own advertiser-specific data model. Google has gotten no closer to speaking ROI; they’re still speaking CPC, and because it’s not just ROAS or CPA that matter – volume of revenues/conversion still figures prominently in 90%+ of advertisers’ goals – not having visibility into and control over impressions, clicks and conversions means you’re not really any further along the path to true optimization.

Andy – I’m not sure why you would deem Efficient Frontier’s approach ’simplistic’? In fact, I’m about, oh, 100% sure that EF’s approach is the single most sophisticated one on the market as has been the case for the last 4 years – precisely why we’re managing well over $350M in annual spend, more by far than anyone else on the market. If you could generalize on our client base they are very ROI-focused, metrics-driven companies for whom search marketing is often a critical or even primary marketing channel. EF’s solution, which applies portfolio algorithms to understand all of the possible yield scenarios across large keyword sets, is light years ahead of the rules-based systems virtually every SEM firm currently uses.
Andy Beal Says:

April 17th, 2007 at 8:27 pm

Hi Chris, thanks for your comments. I refer to “simplistic” as the ease of use for any of your clients. When I invest in a mutual fund, it’s pretty simple as far as I am concerned – the quants, algos, research and management skills of the mutual fund are a different matter.

So, as I said it’s a “simplistic approach to managing a PPC campaign”. If you’re telling me it’s actually quite difficult to implement a campaign with EF, I’d be happy to change my remark.
SEO and SEM Quotes Says:

April 26th, 2007 at 1:35 pm

[...] First up we have someone that is clearly enthusiastic about his company’s services. I like to see this sort of passion from a company stakeholder as long as it’s sincere. “In fact, Iâ€™m about, oh, 100% sure that EFâ€™s approach is the single most sophisticated one on the market.” – comment by Chris Zaharias, SVP of Efficient Frontier [...]

Marketing Pilgrim