Reprinted with permission from the Lyris.com blog archives.
By: Dane Christensen

As coach John Wooden said, “Never mistake activity for achievement.” These words of wisdom are nowhere more appropriate than in the wide-open world of search engine marketing, which offers endless forms of activity that result in questionable achievement. Today, let’s consider the case of real-time bid management.

There are many who see search engine advertising as the ultimate form of marketing where not only can you laser target the people who view your ads, but you can actually optimize your return on investment by adjusting your bids relative to your competitors on an ongoing basis.

But does making bid and campaign structure changes based on real-time data really help you achieve your paid search goals? Or is that idea a red herring that will lead you into an abyss of fruitless activity?

Adjusting bids based on real-time data is the epitome of massive activity resulting in little or no achievement. Here are four main reasons why:

1. Real-time data is not guaranteed to be accurate.

Google says data less than three hours old is not guaranteed to be accurate, and data for the previous day shouldn’t be considered fully accurate until up to six hours after midnight. If data is not necessarily accurate, you probably don’t want to use it to make data-driven decisions… garbage in, garbage out.

2. You don’t actually have real-time data about your current position.

When you see your ad position in the Google UI (or through the API) you are not getting a real-time snapshot of where your ad is appearing right now. You are seeing an average position over some period of time, a day or more. Also, Google varies your position around a range on an ongoing basis, which means that two searchers who simultaneously search on the same term may see your ad in positions three and five respectively. So there is no set “position” that you can possibly have real-time data about.

3. You don’t have fine control to affect your current position.

Even if you did have real-time data about your current position, you don’t have the ability to snap your ad into any given position. Your position is based on your bid, your quality score, all of your competitors’ bids and all of their quality scores, and the X factor of the Google algorithm and its mysterious mechanism for varying ad positions to determine the optimal level over time. You can influence your average position by adjusting bids, but you simply don’t have direct control.

4. You don’t have enough data to make valid assessments in real-time.

Even if all the foregoing weren’t true, due to the laws of statistical significance you simply don’t collect enough data in a short timeframe to make intelligent decisions. The bottom line metric on which to base changes is typically cost per conversion or return on advertising spend (ROAS), both of which depend heavily on conversion rate. But it will take the typical advertiser days, weeks, or even months to collect enough conversion data at the keyword level – where bid changes would be made – at an average conversion rate of 3%. Even if you make decisions based on click through rate (CTR), only the highest volume advertisers get enough clicks on a given keyword in a matter of minutes to draw valid conclusions about changes that ought to be made.

Stay tuned for Part 2 on Friday when we’ll take a look at two key types of SEM objectives, direct marketing and brand marketing, and illustrate why real-time bid management is irrelevant for both.