The fog of war has lifted from Yahoo: Microsoft has walked away, Yahoo claims victory and Google ends up with the spoils. In response to the failed Microsoft bid Yahoo announced a “Non-Exclusive Search Agreement” with Google. In short, this means that Yahoo will outsource a portion (whatever that means) of its search and display advertising business to Google in exchange for a lot of cash.

Some people seem to think this is a good deal but from a search marketer’s perspective, it is not. At first sight I would welcome a standard advertising platform that allows marketers to target specific search engines. But the terms of the deal are half-baked. Yahoo will not abandon its Panama platform in exchange for Adwords but do they really think advertisers are going to bother to use 2 different systems to achieve the same goal? I really can’t see that happening and unless Yahoo is prepared to over time outsource all its advertising to Google it should realise it just rolled in the Trojan horse.

The deal also stifles competition in the market even further. The Big Three (Google, Yahoo, MSN) have distinct characteristics and different users. Most marketers for instance will tell you that MSN has much better converting traffic than the other two and that Google is definitely the most expensive to advertise on. By effectively swallowing Yahoo, Google gives marketers even less choice of where to spend their budgets.

Perhaps, if Microsoft plays its cards right, it could gain something from this after all. Now that Yahoo has made itself irrelevant in terms of search advertising, marketers only need to distribute their budget between Google and MSN. A much easier decision to make than having to split a budget three ways.

Your thoughts?

At SMX advanced in Seattle the question was put to the attendees: “how many of you use bid management tools?”

And that was the most surprising part of the session: nearly everyone in a room with hundreds of people raised their hand. Of course technically speaking using Excel to increase your prices by 10% also makes it a bid management tool. Nevertheless people in the industry seem to take bid management really seriously - as they should. I couldn’t help shake the feeling though that the panelists conveniently touted all the wonders of bid management without touching on its many shortcomings. Only David Rodnitzky from PPCAdBuying.com played the devil’s advocate and warned against the dangers of being sold an expensive, complex system that may not actually offer a return on investment.

I have to agree with David that bid management tools often over-promise and under-deliver and for a very simple reason. bid management makes sense for large PPC campaigns where it is unwieldy to set prices manually. But it is exactly for those large campaigns that the data you have available for each keyword is very sparse. Long tail keywords may contribute a significant portion of your revenue but by their very nature each individual keyword gathers information in a fairly random manner. No matter how smart your bid management system, it cannot make assumptions from data that doesn’t exist. To get around that most system group long tail keywords in clusters and aggregate their data. How you cluster the data though will greatly influence of the system and as far as I know there is no one optimal way of doing it.

A comment made by search marketing veteran Kevin Lee (and with which other panelist Chris Zaharias from Omniture agrees in spirit) also illustrates another difficulty faced by automated bid management. Kevin said that half of the paid ads in top positions are put there by idiots, not rational beings. How would a bid management system incorporate the behaviour of an irrational market into its decision making algorithm?

When choosing a bid management system be careful not to over-complicate things. For small to midsized campaigns you probably don’t need any fancy systems. Choose a tool that is flexible and that lets you override its bid adjustments. That way you can control for events such as special promotions or sudden increased competition in the market. And remember, bid management tools are only an aid, not a solution.

Finally. That was my first thought when Microsoft announced the existence of an MSN Adcenter desktop tool at the SMX advanced conference this morning. We knew something like this was in the pipeline but never knew when it was supposed to become publicly available. Well now it is, almost. The tool will initially only be launched in a private beta so you better apply quickly if, like me, you dread working with the Adcenter web interface. In combination with with the other initiatives MSN has taken recently, such as their cash-back program and the deal to pre-install Live Search on all new HP computers, today’s announcement sends a strong message that Microsoft is determined to go after Google head on.

Google dominates the PPC market not just because it has the most users, but for a large part because it is so easy to advertise on its Adwords platform. But many advertisers don’t like Google’s grip on the market and are just waiting for an opportunity to move a larger part of their budget to alternative search engines. Hopefully Microsoft’s tool will facilitate this.

update: you can signup for the adcenter beta here