Competitive Bidding On Yahoo! Search MarketingOct 25 2006 - Advertising- Farhad Divecha
Anti-competitive bidding on Yahoo! Search Marketing can get very nasty, often without the competition even realising they are being butted out. The simplicity in Yahoo’s bid for placement system is mostly to blame for this.
Accompanying the recent release in beta of Panama, Yahoo’s latest search advertisingplatform, there has been talk of this bid for placement system being modified, but till then unwary advertisers could end up paying hefty prices for clicks that have been inflated by competitors.
How Competitive Bidding Works
The Yahoo! Search Marketing system works on brute force. Advertisers who bid higher per click for a keyword, will enjoy higher placement on the sponsored search results for that keyword. However, the amount paid is not necessarily equal to the amount bid. The amount paid, is in fact just £0.01 (or $0.01) higher than the next highest bid. For example:
Advertiser A bids £1.00 and is placed at #1
Advertiser B bids £0.50 and is placed at #2
Advertiser C bids £0.49 and is placed at #3
The actual price paid per click by Advertiser A is £0.51 and by Advertiser B is £0.50.
However, if Advertiser B raised their bid to £0.90, they would push up the amount Advertiser A pay per click to £0.91. Advertiser B though would still pay only £0.50.
This simple bid management practice can make advertisers drive up their competitors’ cost per click and drive them out of the market by depleting their daily budgets much faster.
The Inherent Danger
There are two inherent dangers with such a bid strategy:
- If the competitor realises their cost per click has been inflated artificially, they could switch tactics and under-bid by £0.01, thereby dropping their cost and position but now making the other advertiser pay more.
- If a third competitor decides to match bids, track bids or outbid the others, this strategy could result in an overall rise in cost per click and lower positions for advertisers who don’t monitor their bids regularly.
On the whole, as competitors raise bids to obtain higher positions, the cost per click keeps going higher and higher, making the same keywords more unaffordable.
It is always smarter, in the long run, for businesses to bid for keywords according to their own needs rather than in an attempt to run competition out of the market. CPA based bidding orROI based bidding are therefore much more reliable and longer term bid strategies that should be employed.