If you are working on sizeable search marketing campaigns you are probably well aware that managing bids for thousands of keywords manually becomes impossible to do efficiently. You need rules and algorithms to adjust bids for you and act and react to changes in the marketplace according to your predefined strategy. Adobe even thinks that “it is the models and algorithms that distinguish the players in this space.”
Adobe offers a variety of resources for search marketers in their online search centre, and among them a comprehensive white paper on portfolio-based bid management algorithms. Portfolio optimization stands in contrast to rule-based bid management. A rule-based keyword bid system would look at every single keyword mostly siloed from the rest of the campaign. For instance, you could sell DVDs online, and you could set the maximum amount you want to pay for a conversion to $20. Your system would take care of not stretching this limit for any of the keywords you are using. If the search term “harry potter dvd” would convert at around $21, your system would simply decrease the bid on this keyword or pause it. There is nothing wrong with that and this method would assure that “harry potter dvd” is converting at an acceptable cost. However, the portfolio approach says that this is thinking too short. Your overall performance might actually be better if you take advantage of the maximum amount of “harry potter” traffic, even if this means paying more for these conversions than you are willing to, and in turn making up for this with other keywords in your account that are converting more cheaply, and thus at the end of the day arriving at a higher ROI and conversion numbers than with a rule-based strategy. That means that a portfolio approach will look at all possible combinations of bids across all the keywords in your account, and then choose the best combination to maximize the overall outcome. It is clear that an extremely sophisticated and fast algorithm is needed to continuously adjust bids across a large account, as there are countless variables from position to CPC and CTR to be considered and all keywords need to be regarded as part of an ecosystem.
The portfolio approach can theoretically work very well – if not best – for campaigns with clearly defined goals and target margins and a predetermined schedule that is not constantly being changed or switched around. Note that there is also a cost involved whenever you connect to the Google AdWords API.
If you would like to read more about portfolio-based bid management, we highly recommend you give to Adobe white paper linked here a read.