To paraphrase a phone call I had today with a senior member of a search company: “bid management technology doesn’t work. A keyword optimized by hand will always outperform bid management tools or companies, no matter how advanced they claim to be.”

Instinctively, I felt compelled to strongly disagree and declare him a member of the flat-earth society. After all, how can a human possibly manage thousands of keywords on multiple search engines (and 24/7 no less). But I thought about it some more, and at the very least I have to admit that there are some strong arguments to be made in favor of manual optimization.

Here’s my list of pros and cons of bid management technology. For the purposes of this posting, assume that I am referring to third-party technology, like Efficient Frontier, Atlas, or KeywordMax.

Pros:

1. Scale: No question, if you have hundreds of thousands of keywords, you can’t manage these by hand. But the true measurement is not the total number of keywords you have in your account, but the number of active keywords. In other words, if you have one million keywords, but you only actually get clicks on 20 of these every week, scale is an irrelevant factor. Anything over 1000 active keywords on at least three search engines can probably benefit from the scale of automated technology.

2. 24/7: In theory, a computer never sleeps and can be updating bids around the clock (many bid management technology companies like to boast about how they can make bid adjustments up to 48 times a day). In practice, there aren’t too many keywords that really require 48 bids a day. And lots of bid management companies end up only making bid adjustments once or twice a day for their clients, mainly because they only get a daily data feed of revenue/profit so anything more frequent than that is overkill anyway. Still, simply having an automated system to at least make one bid a day on your top keywords – especially when you are away from your computer on the weekend – has some value for sure.

3. Advanced algorithms: Every bid management tool/company worth its salt will talk to you about the thousands of programming hours that went into their ultra-secret bid management algorithm. Few if any account reps could possibly explain this algorithm to you, and those that could probably can’t because their company doesn’t want them to give away the crown jewels. My sense is that most of the big bid management companies actually do have algorithms that are reasonably effective, but you really need to push hard on the account reps and the engineers to figure out whether a particular algorithm will truly benefit your business.

4. Singular focus: Why do people get their oil changed at Jiffy Lube? Well, Jiffy Lube is good and efficient at it, and frankly, most people have better things to do with their time. The same is true for bid management. Spend your time doing something else and let a tool to do the heavy lifting for you instead.

5. The IBM factor: There’s an adage in the business world that goes “no one ever got fired for choosing IBM.” Similarly, if you have a big keyword campaign you need to manage, and you need to choose between an established 3rd party tool/service provider (Efficient Frontier, Doubleclick, Did-It, for example) or managing your keywords by hand, choosing one of the experts to (literally) do your bidding gives you an extra layer of job security.

6. Pareto Management: Even if you want to reserve a few top keywords for manual management, by giving the long tail of keywords to a bid management company or tool, you are essentially freeing up your time so that you can really dig deep on your top words.

Cons:

1. Only you know your business: Even if you have the most dedicated account rep in the world, no one outside your company will ever truly understand your business. So if it’s raining outside and that means it’s time to advertise timeshares in Arizona, you can pretty much assume that any 3rd party service provider or tool will be totally oblivious to this fact. Third party technology is only as smart as the rules you give it, and its pretty hard to give a computer program enough rules to truly understand your business.

2. Only you care about your business: Only the sellers of blue widgets stay up all night dreaming of new ways to optimize blue widget keyword campaigns. When the whistle blows at 5PM, don’t expect your account manager to stick around after hours brainstorming the next big thing to put your business over the top.

3. All things to all people: 3rd party bid management technology is always designed for the middle of the road. Expect little if any customization for your business (and expect to pay for whatever customization you request).

4. You’re already behind the ROI 8-ball: Depending on the bid management technology you use, you can expect to pay between 2% and 10% on top of your monthly spend. In other words, let’s say you spend $10000 and you make $1000 in profit without bid management technology. Now, with bid management (assuming a 5% percentage of spend fee), $500 of your $1000 is going to an outside vendor. So if that vendor doesn’t make you an additional $501, the technology is only costing you money.

5. Black box mystery: As noted above, every bid management technology company claims to have amazing technology. It’s really hard to know whether you are actually paying for cutting edge algorithms or a cutting edge PowerPoint.

6. Reaction time: Most bid management companies adjust your bids once or twice a day. If you have offline revenue (i.e., if the bid management company can’t get your revenue through a pixel), you’ll probably end up sending a daily feed of your revenue to the company. That works OK, until something catastrophic happens in the middle of the day, and the bid management company doesn’t find out about it until it receives your revenue file at 1am the next morning.

Summary

My contrarian friend who eschews bid management technology (and companies) does have some valid points. For a small to meduim set of keywords, I do think it is difficult for an outside technology provider to compete with a focused, passionate human manager.

That being said, there’s a reason WalMart dominates Mom and Pop drugstores. When you get to a certain scale of keywords, and you begin to realize that there aren’t enough hours in the day to bid manage, create keywords, test ad copy, and fill out performance reviews, it may well be time to think about outsourcing your bid management to someone else.

1 Comment

  1. josh February 28th, 2007

    Thanks for the deadly post!Do you use any bid management apps for certain campaigns? Which apps in particular?

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David Rodnitzky
David Rodnitzky is founder and CEO of 3Q Digital (formerly PPC Associates), a position he has held since the Company's inception in 2008. Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including Rentals.com (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up. David is a regular speaker at major digital marketing conferences and has contributed to numerous influential publications, including Venture Capital Journal, CNN Radio, Newsweek, Advertising Age, and NPR's Marketplace. David has a B.A. with honors from the University of Chicago and a J.D. with honors from the University of Iowa. In his spare time, David enjoys salmon fishing, hiking, spending time with his family, and watching the Iowa Hawkeyes, not necessarily in that order.