Search Auctions Flawed, Researchers Say

Under current auction models, paid search advertisers tend to end up paying more than they should if they bid what they’re actually willing to pay, according to scholarly research that places the blame both the artlessness of bidders and the “generalized second price” auction mechanisms that Google and Yahoo use, writes ClickZ (MarketingVOX reports). “Under the current mechanism, if they don’t think carefully about their bidding strategies, they can end up paying a lot more to the search engines than they need to,” according to assistant professor of economics at Stanford Michael Ostrovsky, who authored the study along with doctoral candidate in economics at Harvard Ben Edelman and RWFJ Scholar at UC Berkeley Michael Schwarz.

ClickZ points out that most search marketers have long understood that getting the top position isn’t always necessary - or even the best strategy - to maximize search ROI. Marketers should consider other factors, including optimizing landing pages, offers and product pricing, according to Dave Williams, chief strategist at 360i.

Under the current bidding system, advertisers are charged a penny more per click than the next-lowest bid, leading to volatility as advertisers try continually to outbid each other. It’s possible to eliminate that phenomenon by using another auction model, Ostrovsky says, but it would be less profitable for search engines.