Introduction: That is the Question



When mentioned among SEMs (Search Engine Marketers) in a casual setting, Bid Management Tools, which will be referred to as BMTs in this article, often dampen conversations, like talking property tax law at a cocktail party. This is because many people know what a BMT does, but few people actually know how to use it thoroughly and effectively. A BMT is a powerful tool and inappropriately programming it can waste vast sums of ad dollars overnight. Knowing this can add anxiety and considerable feelings of dread to any unprepared SEM walking into the office with his or her morning coffee.

Shakespeare pointed out that it is better to have loved and lost than never to have loved at all. This article will try to answer a question that is of more recent relevance in the age of paid search. Is it better to have BMTd and lost than never to have BMTd at all? Let's clarify some important BMT functions and figure out how to best use them.

What is a BMT?

A Bid Management Tool is a third party interface that helps SEMs manage their paid search campaigns. They usually come in the form of an online program provided by such actors in the search industry as Yahoo!Search or Keyword MAX, two of the better ones out there. An SEM inputs the login information of an account and configures the bid manipulation settings of the BMT. The BMT then obeys the settings to automatically adjust the bids of the SEM's search account in pre-defined time intervals.

The Maximum Bid Setting

Serious campaigns tend to have several thousands of keywords in them. Logging into your account to make sure that all of the keywords are at the position desired by your company's management or set by your own acquisition goals is extremely time-consuming. Bidding for a top position is even more important with Yahoo!Search than it is for Adwords, as the first has a bid-driven ranking system, whereas the latter has a system that optimizes CPC (cost per click) and rank through a combination of CTR (click through rate) and maximum bid. That said, most of the keywords out of the thousands of search terms in your paid search account will probably be under $0.20 to $0.50. A good start to using the BMT is to manage the bids for these inexpensive keywords. It is up to you or your company's paid search business plan to determine if a "cheap" keyword is $0.15, $0.50 or more, as well as the position you would like to be in for each category of these keywords.

Placing your inexpensive keywords at the position you desire and with a maximum bid you can afford will automate a good deal of work in your bidding process. With this type of keyword, I've found that the competition is usually not fierce, so you should with any luck manage to remain at your desired position without too much difficulty. This setup will also allow you more time to manually monitor and alter the bids of your more important and expensive keywords.

The Dangers of Bid Gapping & Putting Yourself in the Number One Spot

The bid gapping function and the set to number one function are tempting, yet dangerous features. Setting specific keywords to rank first in the paid search results on the Yahoo!Search Network can be easily achieved by setting a maximum bid that has the potential to surpass what your competitors are bidding at the moment of the BMT configuration and hitting "1" in the desired rank box. This involves a certain danger for keywords that get several thousands of clicks per day or for high end keywords that cost over $10, $20, $30 or more. Many times, a company will mandate a number one position for such keywords because it seemingly serves a flagship position in representing the company's products or services. Additionally, the number one rank sometimes conveys a certain authenticity, which may help a company's branding strategy.

Now picture the following scenario: Several SEMs are using their BMTs to bid on a word that costs several dollars per click. They have each configured their BMT setting to update the bids once every hour. As you can imagine, the CPC of the already expensive keyword in question will rise steeply and rapidly. Most BMTs come equipped with a bid gapping function.

Bid of Advertiser A: $19.01

Bid of Advertiser B: $19

Bid of Advertiser C: $18.99

Bid of Advertiser D: $4

In the illustration above, Advertiser D has dropped out of the race, as competing in this bidding war would deplete his budget. Advertiser C applied a bid gapping function in his BMT to Advertisers A and B. The action of C, who had only been paying $4.01 per click, serves to exert upwards pressure on the price levels of this keyword, hoping that it will eventually force Advertisers A and B to rethink their bidding policy towards something more affordable. A BMT's bid gapping function can serve to force an end to the vicious cycle provoked by too many advertisers using a "place at number one" function.

Both the "bid gapping function" and the "place at number one" functions should not be taken lightly when used on expensive or high volume keywords. Each presents the possibility of being severely bid gapped by aggressive competitors. As a solution, certain BMT's have an option that allows an advertiser to drop down to the next CPC level whenever a bid gap of a certain size is in play. In the previous example, if Advertiser B had configured the BMT's parameters to avoid bid gaps of $15 or more, he would shortly drop down to the third position at a CPC of $4.01. In any case, it is imperative for any SEM using a bid management tool to constantly keep an eye on the daily spend level and conversion rates of his or her paid search campaigns, in order to avoid a catastrophe while seeking fortune.

Conclusion

Do not risk any significant sums of money unless you know precisely what you're doing. Improper use of a BMT can cost you or your company a fortune. Inversely, the proper use of a BMT can provide incredible returns, make your job easier, and possibly score you that promotion you've been hankering for. As with any instrument that has the potential to yield a profit, BMTs involve monetary risk and should be used with caution and attention to detail in mind. For those looking to use a BMT, my advice is to take the tutorial that the BMT provider offers and to start small while gaining experience. Keywords are hot: be careful, have fun, and good luck.