Overture Says Forget CPC, What's Your ROI?

Purchasing paid listings just got a whole lot more complicated -- or a lot more easier -- depending on your perspective, thanks to changes at Overture last week. The company rolled out a new bidding system that will force many advertisers to think more about how much they can afford to pay to gain leads rather than how cheaply they can get those leads.

Previously with Overture, advertisers have indicated the fixed amount they were willing to pay to be listed for a particular search term. Those who "bid" more on a term were listed above others competing for that term. Want to be listed number one for shoes? If the current top person is paying $0.20 to be there, then a bid of $0.21 would put you over them.

Last week, Overture's system shifted in a subtle but significant way. The emphasis is now on understanding how much you are willing to pay for a particular term, rather than how much you need to pay to beat others for that term.

This important change has come about through the introduction of "auto-bidding." The feature lets advertisers indicate the "max bid" they are willing to pay for a particular word, then have Overture automatically increase the amount they pay to get them the best position, as long as it doesn't exceed the maximum.

Auto-bidding is a feature that many Overture advertisers have wanted, because it can be a time consuming process to monitor all of your listings -- some people have thousands of them -- to ensure that you haven't been bumped out of a prime position. Generally, Overture's major partners won't pick up more than its top five listings. If you slip to position six, your visibility can suddenly plunge.

With auto-bidding comes simplicity. Just decide how much you can afford to pay, and we'll get you the best spot, is the message from Overture. We'll even ensure you don't pay more than a penny more than the maximum someone below you is willing to pay.

"The education process with our advertisers is to encourage them to understand what's the appropriate bid to ensure they are hitting their ROI for that term, that the advertiser knows, 'This is the maximum I can afford to pay for my bid and still make business'," said Lisa Morita, Overture's senior vice president and general manager of online business and marketing.

Simplicity can also be dangerous. It's bad advice to walk into a car dealership and let a salesperson ask you how much you are willing to pay per month. You'll end up with a monthly payment that fits your budget, but that may be because the total price of the car is spread out over several years. You should know how much you can afford to pay in total before talking.

Similarly with paid listings, whether at Overture or elsewhere, you need to know how much you can afford to spend and still make money. That's the magical ROI acronym: return on investment. If you spend $1,000 per month with Overture and that generates $10,000 in related sales from those leads, you've got a good ROI. If you spend $1,000 per month and only get $500 back, you've got an ROI problem.

Of course, when it comes to buying cars, you not only want to know how much you can afford to pay but how much you should be paying for a particular vehicle. However, there is no "list price" for search terms. At Overture and elsewhere, prices have been set by the market -- what people are willing to pay can push the bids for a particular term up or down.

Fortunately, this is where bid gap reduction tools can help. These are designed to prevent you from paying more than you need to for particular search terms. The new one integrated into Overture's account management system probably means the list price for many terms will probably rise in the short term, because it will be much easier for people to automatically leap over their competitors. However, in the long-term, we may see prices settle down.

Regardless of what happens, auto-bidding for the masses has come to Overture and will fundamentally change the way people behave. Even if Overture hadn't provided it, third-party tools have already given some advertisers this capability. Now that everyone has easy access, a focus on ROI will be necessary more than ever to compete and succeed. Ironically, such a fundamental shift will be welcomed by Overture's chief paid listings competitor, Google.

Like Overture, Google wants very much for advertisers to make the move from fixating on actual cost paid per click to instead focus on what they can afford to pay. This is because Google's paid listings system is far more complicated than Overture's.

Google ranks its paid listing by what I call the "clickvalue" rate, the sum of cost-per-click bid times clickthrough rate. This makes determining the exact cost needed to get a top rank in Google extremely difficult to determine.

"Some of the frustration is, 'I just want to know what I have to pay to be number one'," said Sheryl Sandberg, Google's director of AdWords sales and operations.

The advice from Google is the same as the advice now from Overture. Know the maximum you can afford to pay, bid that amount, and our bid management tool will give you a "discount" off the "list" price, any time this is available.

Just trust us. That's not something you usually want to believe when someone is trying to sell you something, whether it be cars or paid listings. However, the underlying advice is sound. Knowing what you can afford to pay could help simplify your bidding strategy, and the internal bid management tools are designed to get you traffic at a discount from your maximum, where possible.

Even better, some third-party tools "close the loop," watching how you get your traffic, what it costs and then focusing your money in the places that provide the best returns. Don't trust the sales people? Then you might explore these, but you'll still need to know how much you can afford to pay, even with them.


Overture FAQ: Bidding

Q&A direct from Overture, on its new system

Google AdWords Select

Up Close With Overture's Bid Management
The Search Engine Update, July 1, 2002

For Search Engine Watch members, this article takes a closer look at how bid management works at Overture. In particular, it examines why even though there may still be "cost gaps" between bids, this is unavoidable in a system designed to allow auto-bidding.

Up Close With Google AdWords
The Search Engine Update, March 4, 2002

This article for Search Engine Watch members takes a closer look at the Google AdWords program and how its internal bid management system works.

Search Engine Optimization Toolbox: Bidding Managers

Don't trust or like the internal bid management tools offered by paid listing providers? There are third-party tools also available. Some of these also provide ROI measuring capabilities. A list for Search Engine Watch members is kept here.

Tracking and Measuring Search Engine Marketing Success
SearchDay, June 18, 2002

It's not enough to simply optimize your web site and hope for high traffic. You need to use tools and techniques to assure success and assure ROI, according to a panel of search engine marketing experts.