ita05 agents presentation

Search Engine Auctions

Sampath Kongala

Matthew Meir

Ronald Dominici

Jeff Chan

Ryan Meech

Chuck Haggerty

John Tawdros

Sam DerKazaryan

Alison Kuryla

Ben Perry

Brendan Kitts, Benjamin LeBlanc, Paramesh Laxminaravan

iProspect

The Arsenal on The Charles

311 Arsenal Street,

Watertown, MA. USA.Email: bkitts@excite.com

PPC

?

Say I want to customers to buy my

“bedsheets”.

Hey, how about - “green bedsheets”!

PPC Auction example

Get keyword if

possible

PPC Auction example

1. Green Bed Sheets up to 70% Off

Shop Smartbargains now and save on high-quality sheets and more. Plus,

you'll also find incredible low prices on everything for the

bath. www.smartbargains.com (Advertiser's Max Bid: $0.12)

2. Green Bed Sheet - Compare Prices

Find, compare and buy home and garden products from online stores at

Nextag. www.nextag.com (Advertiser's Max Bid: $0.11)

3. Buy Green Sheets at Linenplace

Indulge in our fine selection of luxurious merchandise such as 600 thread

count sheets and Egyptian cotton towels. www.linenplace.com (Advertiser's Max Bid: $0.10)

4. Wal-Mart Home

Springmaid antique rose bed-in-a-bag 220-thread count only

$49.84. www.walmart.com (Advertiser's Max Bid: $0.10)

Check the auction…. “Green Bedsheets”

$0.11 would mean I end up

in position 2-3

Dem

an

d

Every click I agree

to pay this price for

each customer

PPC Example

1. Learn about Life Meaning

Based on the wisdom of Kabbalah, Spirituality for Kids programs present

teachings that espouse peace and fulfillment as the birthright of all

humanity. www.kabbalah.com (Advertiser's Max Bid: $0.13)

2. Discover Your Meaning in Life

Explore and discover your life purpose, your unique vision, and the meaning

of your life through intuitive and supportive life coaching. Call today for a free

session. www.possibilitiescoaching.com (Advertiser's Max Bid: $0.12)

3. Find Your Life Purpose Workbook

Become your true self. Find your life purpose. Identify your values, talents

and top motivators. Develop clarity, meaning and personal

power. www.higherawareness.com (Advertiser's Max Bid: $0.12)

4. Discover the Meaning of Your Life

Understanding who you are, why you're here, and what you can do about it.

Manifest changes and find happiness using the powers of thought and

imagination. www.mcssl.com (Advertiser's Max Bid: $0.11)

PPC Example

Hey, just $0.13 per

click!

Hey,

maybe I

should

try this

meaning

of life

stuff…!

$19.95

PPC Example

• Broad phrases that attract millions of customers,

eg. “car” generate a lot of non-converting traffic.

• Every customer who doesn’t convert costs the

advertiser money.

• Accounts evolve under economic pressure to

become more and more finely tuned to their

audience in order to decrease expenses and

increase number of conversions.

Economics of PPC

Result

Auction prices

Does keyword price correspond to anything in the real world?

• home $0.53

• loan $3.75

• home loan $4.78

• home loan ca $7.83

• home loan california $8.09

• home mortgage california $10.14

Auction prices

….

• home loan al $3.23 (Alaska)

• home loan co $3.78 (Colorado)

• home loan ky $3.83 (Kentucky)

• home loan ks $3.93 (Kansas)

• home loan nh $3.99 (New Hampshire)

• home loan mt $4.03 (Montana)

• home loan tx $5.26 (Texas)

• home loan pa $6.11 (Pennsylvania)

• home loan fl $6.99 (Florida)

• home loan ca $7.83 (California)

• home loan ny $9.50 (New York)

Expensive keywords = lucrative customers

What will the most expensive keywords be?

Keyword prices

Most expensive keyword in the

world….

Mesothelioma!

…. Huh?

Most expensive keyword in the

world….

Bialik, C. (2004), “Lawyers Bid up Value of Web-Search Ads”, Wall Street Journal Online. April 8th, 2004, Dow Jones

Newswires.

1. Mesothelioma Lawsuits

Are you a victim of Mesothelioma Asbestos disease? Let Mesothelioma

Asbestos Lawsuits assist you in claiming the compensation loss that you are

entitled. www.mesothelioma-lawsuits-asbestos.com (Advertiser's Max Bid: $100.00)

2. Mesothelioma Hope, Help, Legal Options

Current news on mesothelioma help, treatment, clinical trials and legal

options helping hundreds of mesothelioma victims. Visit us to request free

personal visit and free information packet. www.mesotheliomaoptions.com (Advertiser's Max Bid: $100.00)

3. Mesothelioma Treatment

Information on treatment options, cancer centers, clinical trials, newsletter,

legal rights and other useful links for those who suffer from mesothelioma. Fill

out form for more info. www.mesotheliomaweb.org (Advertiser's Max Bid: $100.00)

4. Mesothelioma Patient Support

Mesothelioma Net, a Web site for mesothelioma patients and their families

that includes treatment options, doctors, medicines and how to obtain

financial assistance and other support. mesothelioma-net.com (Advertiser's Max Bid: $100.00)

5. Mesothelioma Treatment Update

Medical treatment information and legal representation for mesothelioma,

lung cancer, asbestosis and pleural disease victims caused by asbestos

exposure. www.mesothelioma.com (Advertiser's Max Bid: $50.00)

$100 per

click

$50 per

click

Overture auction for:

“Mesothelioma” July 19,

2004

Most expensive keyword in the

world….

Most expensive keyword in the

world….

Most expensive keyword in the

world….

• $100 for a click!?!?

• (Reality check)

• Average Mesothelioma settlement over past 5

years: (US) $1 million. Law firm takes 40% =

$400,000

• Conversion rate => Enter here

Are these guys crazy?

• E[payoff|conv] = $400,000

• Pr(conv|click) = 1/1000, say

• Revenue per click = E[payoff|conv] *

Pr(conv|click) = $400

Ramp up the bids!

Are these guys crazy?

Keyword auctions

In 2000 there were this many

auctions……

There are

now….

Explosion of Paid Search

Paid Search is now the largest advertising vehicle on the internet

Internet Advertising

Expenditure by vehicle

4%

15%

31%

0%

5%

10%

15%

20%

25%

30%

35%

2001 2002 2003

Year

Perc

en

tag

e o

f sp

en

d

Search

Search

Internet Advertising

Expenditure by vehicle

36%

29%

22%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003

Year

Perc

en

tag

e o

f sp

en

dBanners

Banner ads

Cost Per Acquisition Across Various

Direct Marketing Methods (source: US Bancorp Piper Jaffray Equity Research)

$9.94

$2.00$1.18

$0.50 $0.29

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Direct

Mail

Banner

Ads

Yellow

Pages

Email Search

Engine

Very low CPA

Explosion of Paid Search

Source: Forrester’s Consumer Technographics 2003 North American Benchmark Study; Base: U.S. Households

Online and television mirror the percent of time households spend with each

medium. Ad spend – opportunity to reach prospects – does not.

Online

Magazines

Radio

Newspapers

TV

0% 10% 20% 30 % 40%

Percent of ad

spending on

each media type

Percent of time

households

spend with each

media type

Adv on internet will grow

Explosion of Paid Search

Search auctions are now bigger than

eBay.

Where are the researchers?

2%

7%

21%

27%

6%

27%

0% 10% 20% 30% 40% 50%

Same bid for all

words

Use amount

suggested by engine

No particular method

Bid for top three

listing

Calculate percentage

of cost of good sold

Use historal

effectiveness data

Percentage of Search Marketers

Source: JupiterResearch Executive Survey (8/04), n = 538 (search marketers, US only)

historical

Bidders today are irrational

But Bidding can be turned into

an optimization problem....

Objective: Maximize Profit

Subject To:

Budget, Return on Advertising, Position,

Other constraints

Objective

)),,(,,()),,(,,( ,,, tktk

k t

tkk btkptkcbbtkptkcr

Maximize profit: Find bids that maximize the

sum of profit over all auctions in the planning

horizon.

Profit = RevPerClick * clicks – bid * clicks

Intro to PPC

Rule-based bidding

PPC agent

Case study

Results

What worked

What didn’t

What now?

Budgetbtkptkcbk t

tktk )),,(,,( ,,

Constraints

Budget: “Don’t spend more than $100 per month”

Intro to PPC

Rule-based bidding

PPC agent

Case study

Results

What worked

What didn’t

What now?

ROAS: “For every $1 spent, I must generate

at least $1.50

ROAS

btkptkcr

btkptkcb

k t

tktk

k t

tktk

)),,(,,(

)),,(,,(

,,

,,

)),,(,,( ,tkk btkptkca

)),,(,,()( ,,, tktkktk btkptkcbr

)),,(,,( ,tkk btkptkcr

)),,(,,( ,, tktk btkptkcc

),,( ,, tktk btkpp

Acquisitions

Profit

Revenue

Clicks

Position

Cost)),,(,,( ,,, tktktk btkptkcbC

kr Revenue per click

)),,(,,( ,tkbtkptkc Position-Clicks

),,( ,tkbtkpPrice-Position

Building the Profit FunctionF

un

ctio

ns e

stim

ate

d

sta

tistic

ally

Intro to PPC

Rule-based bidding

PPC agent

Case study

Results

What worked

What didn’t

What now?

Price prediction

Position prediction:

If I offer a bid on keyword “health

insurance” in 5 days time, what position

will I be awarded?

Intro to PPC

Rule-based bidding

PPC agent

Case study

Results

What worked

What didn’t

What now?

Clicks prediction

Clicks prediction:

If I am in position 5 on keyword “health

insurance” 5 days from now, how many

clicks will be attracted to my site?

Intro to PPC

Rule-based bidding

PPC agent

Case study

Results

What worked

What didn’t

What now?

)),,(,,( ,tkk btkptkca

)),,(,,()( ,,, tktkktk btkptkcbr

)),,(,,( ,tkk btkptkcr

)),,(,,( ,, tktk btkptkcc

),,( ,, tktk btkpp

Acquisitions

Profit

Revenue

Clicks

Position

Cost)),,(,,( ,,, tktktk btkptkcbC

Building the Profit Function

Intro to PPC

Rule-based bidding

PPC agent

Case study

Results

What worked

What didn’t

What now?

Profit Function for one auction-

time slice

0 10 20 300

1

2

3

4bid

0 10 20 300

5

10

15

20

25

30

"mailing lists", kid 51, profitable below 18, maxprof 18

clicks

0 10 20 300

0.5

1

1.5

2conv

0 10 20 300

10

20

30

40rev

0 20 40-60

-40

-20

0

20

pos

prof

0 10 20 300

20

40

60

80

100cost

Se

ale

d b

id,

for

on

e

ke

yw

ord

-tim

e

Conversion Rate for Selection of Retailers

(1.0 = average conversion rate)

1.0

0.8

0.6

0.4

0.3 0.3 0.3

0.6

0.8

1.0

1.1 1.1 1.1 1.1

1.2 1.1 1.1 1.11.1

1.1

1.2 1.2 1.21.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

12:0

0 A

M

2:0

0 A

M

4:0

0 A

M

6:0

0 A

M

8:0

0 A

M

10:0

0 A

M

12:0

0 P

M

2:0

0 P

M

4:0

0 P

M

6:0

0 P

M

8:0

0 P

M

10:0

0 P

M

Hour

Co

nvers

ion

rate

/

Avera

ge c

on

vers

ion

rate

24 Hour change in consumer

behavior

Conversion rate for selection of retailers

(1.0 = conversion rate on Nov 11, 2004)

0

1

1

011

11

11111

1

1

111

1111111

1111

11121

2222222

3

333333

34

4

44

4

5

5

5

566

656

4

44

32

222

33

2

4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

10/1

6/0

4

10/2

3/0

4

10/3

0/0

4

11/0

6/0

4

11/1

3/0

4

11/2

0/0

4

11/2

7/0

4

12/0

4/0

4

12/1

1/0

4

12/1

8/0

4

12/2

5/0

4

Date

Lif

t in

Sa

les

pro

ba

bilit

y

2 Month change in consumer

behavior

• Day parting: Decides when and what to spend

• Saves up money to dominate during times of high purchase activity

• RL style exploration

• Model testing and redundancy

• Financial fail-safes

• Emails alerts if critical variables are unusual

• Monitoring system

• Selectable optimization objectives and constraints

• 40 rules

• What-if predictions & recommendations

Why the bidding agent is cool

Account Start Up

User Rules and

Objectives

Model Quality

Current State of

Auction

Conversion History

What-if Analysis

Expanded Keyword

List

Why the bidding agent is cool

Why the bidding agent is cool

Why the bidding agent is cool

Why the bidding agent is cool

Why the bidding agent is cool

Why the bidding agent is cool

What-if Analysis

Account Start Up

User Rules and

Objectives

Model Quality

Current State of

Auction

Conversion History

What-if Analysis

Expanded Keyword

List

Budget Profit Conversions Clicks Expenditure Bid CPA

$20 $49.17 1.93 18.31 $20.00 $0.88 $10.35

$40 $82.32 2.56 26.17 $40.00 $0.98 $15.64

$60 $103.82 2.79 30.47 $60.00 $1.04 $21.54

$80 $102.26 3.07 38.48 $80.00 $1.27 $26.05

$100 $97.06 3.29 44.44 $100.00 $1.33 $30.40

$120 $89.78 3.39 46.06 $120.00 $1.37 $35.38

$140 $81.68 3.56 49.07 $140.00 $1.45 $39.28

Why the bidding agent is cool

Account Start Up

User Rules and

Objectives

Model Quality

Current State of

Auction

Conversion History

What-if Analysis

Expanded Keyword

List

50 100 150 200 250 300

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

budget

lift

Effect of budget on profit, traffic and conversions

profit

conversions

clicks

bid

pos

Why the bidding agent is cool

Account Start Up

User Rules and

Objectives

Model Quality

Current State of

Auction

Conversion History

What-if Analysis

Expanded Keyword

List

20 40

60 80

100120

140160

180200

220240

260280

3001.05271

2.052713.05271

4.052715.05271

6.052717.05271

8.052719.05271

10.052711.0527

12.0527

0

0.2

0.4

0.6

0.8

budget

Positions captured under budget excl minimum bids

position

pro

b p

ositio

n

Why the bidding agent is cool

September 18, 2003, 7pmSeptember 17, 2003, 3pm

Knowledge of different

demand functions allows

for “day part” bidding. Off-

line because heavy

demand at this time

would exhaust the budget

Time-dependent de-activation

The agent even likes gaps!

5 10 15 20 25 30 35 400

1

2

3

4

5

6

7

8

9Last bid positions for mailing list

Position 6

Position

Bid

5 10 15 20 25 30 350

1

2

3

4

5

6

7Last bid positions for business list

Position 10

Position

Bid

Analysis of Bidding Strategy

5 10 15 20 25 30 35 400

1

2

3

4

5

6

7

8

9Last bid positions for business lead

Position 10

Position

Bid

Analysis of Bidding Strategy

Many keywords

that users insisted

on winning are now

still being bid, but

constrained to

lower positions.

1 2 3 4 5 6 7 8 9

0

10

20

30

-70

-60

-50

-40

-30

-20

-10

0

10

hour of day

Actual profit by position-time mailing list

position

pro

fit

Decreased Cost per Click 36%

Decreased Cost per Order 63%

Results

Cost per Click Cost per Order

Self Managed

iSEBA

Increased revenue from PPC 150%

Increased PPC orders 126%

Results

Revenue Orders

Self Managed

iSEBA

4,991% increase in click-throughs

157% Return on Ad Spending

71% Increase in Conversion Rates

“We’re buying the right keywords,

and writing better descriptions to go with those keywords,”

- Karen Weber, Director of E-Commerce for HatWorld

• Autonomous bidding for 2 years – real money, real risks

• In excess of (US) $6 million dollars under management

• Revenue doubled last quarter

• > 100,000 auctions under management

• Too big for humans to manage.

• Search auctions being considered for TAC 2006!

Project Status

Brendan Kitts

P. Laxminarayan

Ben LeBlanc

Erik Westland

S. DerKazaryan

Alison Kuryla

Charles Haggerty

Ryan Meech

Ben Perry

Sam Kongala

Sam Chiu

Thankyou

Enquiries, papers, say hello: bkitts@excite.com