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Bid War - What To Do?

 9:12 pm on Aug 13, 2003 (gmt 0)

Hi everyone!

I entered into a bid war with one of our competitors. The keywords we are bidding on are not traffic heavy but are very targeted to our services. This war has gotten to a point, where I am bidding $1.00 and the only other bid (our competitor) overbids me with a $1.01 bid! This is totally ridiculous!

I donít know what to do. I donít want to stay in the first position for $1.00 because I am afraid our competitor will just click us out of our budget. I donít want to drop out either.

What to do? Any advice would be greatly appreciated!



 4:28 pm on Aug 14, 2003 (gmt 0)

Rogerd and Jack Frost:

Thanks for your concerns. These 3 law firms have an agreement amongst themselves not to drive their bids sky high by getting into bidding wars. Collusion? More like an agreement amongst gentlemen. They 'take turns' at number 1, and 2 spots. They will bid outrageously high if one particular firm tries to take the number 1 spot - I guess they have a beef with her.

These people are fanatical about their search engine standings. They monitor their bids on an hourly basis - I could understand this time investment if it were e-commerce sites - but these are law firms.

My client is the only one among them who uses an seo. My client has 'natural' page one standings now, and I have gotten him out of that rat race, since I have been able to show him that he can have page one position one for 1/10 the cost that his competitors are paying with ppc.

But I really don't see this as a collusion issue. This is a small community of lawyers vying for a limited market in a very focused type of law practice in one state. They are not fixing prices - just agreeing to some limits as to what they will pay for ppc, and being considerate of each other rather than getting into the ridiculous bidding wars.

Am I missing a bigger picture?


 4:34 pm on Aug 14, 2003 (gmt 0)

My own ideas:
-Price fixing is illegal, in general.
-ROI can always be calculated, I assure you. Maybe you need an expert to help you.
-Use game theory. Game theory can be quite effective in a case like yours, and it may have striking results. Of course, you need to have an idea of your ROI first. Intuitively, I think you have two options:
Bid just to reach the number 3 position (0.10 is ok). (safe strategy).
If there are more than 3 bidders, probably you may want to rapidly increase the bids, and then leave the arena. If the other two top bidders climb up with you, they will be competing at such a high level, that they might get broke. Since both of them climbed up, they won't go down just because you leave, (but you have to retire for a while, or they will discover you strategy). (Aggresive, but riskier strategy)
In game theory, there's a similar classical example which IBM followed. This may be illegal too, especially if you are the biggest competitor. However, it's much more difficult that anyone can prove anything. (Ask IBM!)


 4:49 pm on Aug 14, 2003 (gmt 0)

I'm not an lawyer or expert in this field, WebWoman, but I think the test is whether they have communicated with each other about the pricing issue. It's legal to observe the actions of others, and make changes yourself. The steel industry is a good example of that, where one market leader will raise or lower prices, and other firms will match the change. The prices look "fixed" but this process is legal. The firms don't communicate with each other and don't try to set limits.

Verbal or written communication to coordinate pricing or pricing strategies would be illegal if, in fact, PPC bids fall under price fixing/restraint of trade laws.

(Hmmm... I'm noticing the price-fixing discussion has kind of hijacked the thread about dealing with a bidding war... sorry about that.)


 5:01 pm on Aug 14, 2003 (gmt 0)

I'm really surprised at this discussion.

Of course price fixing or collusion is illegal. It goes on in a lot of industries, but I've never heard adults openly wondering about whether it's OK.

What is probably more common in Overture bidding, and legal, is "signaling" where competitors work together without ever talking to each other. You can see this happening in a lot of bid wars where a bidder will lower his price in an unarticulated invitation to others to do the same. Or when everyone sort of stops changing bids and (without saying so) agrees to stay where they are.


 5:03 pm on Aug 14, 2003 (gmt 0)


Thanks for the advice! Believe it or not, I have looked into the game theory (and even watched "Beautiful Mind" one more time!) for this specific situation. I knew that there has got to be a solution, but the benefits/payoffs/ROI are unclear. We are a small niche consulting company and have few projects (around 10K average). How do I even start making assumptions about ROI model? I have no idea.

As for the price fixing Ė it is an interesting issue and am glad it is being discussed. Price fixing is illegal. Period. Does it apply to this case? Well, I think so. Want to hear the facts of the case? Well:

1. Firms spend $$ on advertising.
2. Firms agreed on the price they will pay
3. The execute the agreement
4. Who has suffered as a result? Well, consumer for a start as they do not get a clear representation of a marketplace since other competitors are not able to enter. That is why government will interfere. How will they know? Overture will alert them since Overture is materially damaged as they make less money.

So, I am not a lawyer either, but this issue seems more into the black than gray. I knew a couple of people from one large (!) oil company that went to jail because they had lunch with execs from other oil companies and discussed pricing! So, I will stay away from this tactic, even though I donít think anyone will go after a small guy like me.


 5:23 pm on Aug 14, 2003 (gmt 0)

Who has suffered as a result? Well, consumer for a start as they do not get a clear representation of a marketplace since other competitors are not able to enter.

How is it that they are not able to enter? There is nothing stopping any other firm from bidding on the same keywords at Overture.

And as far as consumers not getting a clear representation of a marketplace - hogwash! They get thousands of pages of results when they type in their search term.

Collusion and conspiracy sound illegal - but they are only illegal if they are collusion and conspiracy to perform an illegal act. Example, there could exist a conspiracy to boycott a particular company's products. But since boycotting is not an illegal act, this is not criminal conspiracy. Agreeing to bidding limits for search terms at Overture is not illegal, last time I looked. Overture may conduct it's business however it likes, and they may consider it 'illegal' per their TOS, but that does not make it an illegal act in a court of law.

[edited by: webwoman at 5:34 pm (utc) on Aug. 14, 2003]


 5:30 pm on Aug 14, 2003 (gmt 0)

Who has suffered as a result?

Overture has been injured if bidders collude to reduce prices. So have Overture partners (MSN, AOL, etc.) who directly share in click revenues. Do you think Bill Gates can afford decent lawyers? ;)

[edited by: rogerd at 5:32 pm (utc) on Aug. 14, 2003]


 5:31 pm on Aug 14, 2003 (gmt 0)

We try scaring them first. Not at levels of $1, but if it's like a 10 cent bid, and they're bidding 11 cents, we'll go to 14, just to let them know we're not messing around. If they go to 15, we'll go to 18. You squash it before it gets into a penny at a time thing. We've got some 50 cent bids where the next person is at around 30, and it's just to prevent this war from happening in the first place. It's a premium I'm willing to bear.

If that doesn't work, then you figure out whether it's worth conceding and just getting the sweet spot in those results, as others have said.


 5:34 pm on Aug 14, 2003 (gmt 0)

Here's the real trick to Overture. Don't throw money at it, don't fight for the top position, just find out what ads work for you, make sure they are on the first page and find those great keywords that nobody else is bidding on.

quote of the year (imo)



 5:39 pm on Aug 14, 2003 (gmt 0)

>...and find those great keywords that nobody else is bidding on.

The keyword tool is your friend :)


 5:39 pm on Aug 14, 2003 (gmt 0)


You are right Ė these are considerations that need to taken into account. Your points are well taken. Thatís what courts do when the case is heard. However, the main test for anti-monopoly policy (price fixing is part of this government regulated part of business) is whether damages are incurred. In this case, they are incurred by Overture.

If those firms were in Europe and the case was investigated, I can almost guarantee that it will be settled very quickly. In the US, the main focus on the consumer rather than corporations. Thatís why I brought it up and I think it has legitimate basis.


 5:45 pm on Aug 14, 2003 (gmt 0)

Evryone is so greedy these days they don't know what co operation, sharing, and working together means. The smartest thing to do is everyone bid 5, 6 and 7 cents. Then trade places each month and share the work. No one needs to be greedy enough to not share work and money. I would feel better knowing that I helped people make money and they helped me rather then I scammed them and they are trying to scam me. Webwoman, if I found your firm involved in this type of hyprocrosy I would not hire your services. I know you need to make a living, but typically lawyers are already rich. Why can't people just be nice and accpept that there are other people out there doing the same job as them and need work also. Use your intellect, not your power to make money. Intellect is making good ads and targeting keywords. Power is forcing your competitors to waste money on a corporation (overture) that makes billions of dollars already.


 6:04 pm on Aug 14, 2003 (gmt 0)

Should I start overbidding them until it gets to say 2.00 and then bid for the third position?

Do the math on this and you'll figure it out. If you don't have enough data to test out multiple spots, do short test runs to try to fill it in with a rough sample. See what works for you.

Your Profit = (Number of Clicks at Spot X * Conversion Rate at Spot X) * ( (Avg Income per Action - Avg Non-marketing Expense per Action) - (CPC at Spot X / Conversion Rate at Spot X) )

Although it's nice to be number one, profit is king. Let your competitors waste their time and money through their ego. In the meantime, boost your converstion rate through keyword research and optimization of your sales process.


 6:17 pm on Aug 14, 2003 (gmt 0)

>These 3 law firms have an agreement amongst themselves not to drive their bids sky high by getting into bidding wars. Collusion?



 6:23 pm on Aug 14, 2003 (gmt 0)


Thanks! That is approximately the formula I would imagine using. The problem is: income per action is unknown. We do not sell products but services Ė highly customized management consulting projects. We get 250 visitors and none will contact us. Next day, we may get 150 and get two leads that will not work out at the end. Then, we may get 400 visitors and one solid lead, which may work out in 5 months with an income of 3K for example.


 6:24 pm on Aug 14, 2003 (gmt 0)

In my experience, pushing up to maintain No 1 does not result in more sales.

Consumers are smart enough not to buy on the first webste they visit, unless the "WOW factor" is there. in that case they "never" leave ;-)

If your site is at No 5 but is the best site on the field you will close the deal.

Bid conservatively, spend that money and effort on your site and you will end up doing better than the No. 1 spot.


 6:34 pm on Aug 14, 2003 (gmt 0)

Kukenan is right.
Investing in your site is worth more then a couple spots on overture.


 6:35 pm on Aug 14, 2003 (gmt 0)


The smartest thing to do is everyone bid 5, 6 and 7 cents. Then trade places each month and share the work. No one needs to be greedy enough to not share work and money

This is exactly what they are doing (but it's higher than 6-7 cents)

Webwoman, if I found your firm involved in this type of hyprocrosy I would not hire your services.


If you read my posts, you'll discover that I have seo'd my client OUT of this. He no longer needs ppc since he now holds top ranking naturally.


P.S. Shak is the voice of reason here.


 6:47 pm on Aug 14, 2003 (gmt 0)

In a service business, where an action is a lead, you have new variables. You have a lead conversion rate, which is part of your sales process. Hopefully, the end of this process will be a sale, anyway, and you should record this data as well. Once you can link a sale to a campaign or keyword, you can begin creating averages.

When you first start with this, your information will not be very accurate, due to lack of data. But over time, you'll see trends in the amount of income you make over various periods of time, and then you can create an average income per sale, and an average income per lead. (Avg Income per Lead = Avg Income per Sale * Lead Conversion Rate)

The previously mentioned formula will work, though, if you substitute Avg Income per Action with (Avg Income per Sale * Lead Conversion Rate)

I hope this helps.


 6:57 pm on Aug 14, 2003 (gmt 0)

I took a quick look at Overture's Advertiser T & C, and didn't find any mention of bidder cooperation/collusion. So, it could be that any issues related to collusion would legal (US, California, and any other entity that might claim jurisdiction) rather than contractual.

I DID notice that the Terms had been updated VERY recently: August 16, 2003. Just shows that Overture is a forward-looking company since the rest of us are mired here a couple of days back. :)

too much information

 7:05 pm on Aug 14, 2003 (gmt 0)

Thanks Shak!

My first nomination! Woo Hoo! ;)

I actually had to write that sentence two or three times before it sounded the way I wanted it to. I'm glad someone noticed it, the thread seams to have diverged a bit.

Ironic how this thread has taken the same course as an actual bidding war. Everyone starts out trying to just get in the game, then slowly it's a strugle to get to the top with everyone getting suspecious and pointing fingers, then it becomes a complete free for all!

Well, maybe not...


 7:19 pm on Aug 14, 2003 (gmt 0)


Thanks! That makes sense and you are right Ė the formula will work. Itís just we are a fairly new company and do not have that data. Hopefully, we will soon!

Thanks for the advice Ė I appreciate it.


 7:41 pm on Aug 14, 2003 (gmt 0)

Hey, Webwoman... if your client brings up OT bidding in conjunction with his fellow sharks, just ask him if that's OK under Section 1 of the Sherman Antitrust Act... I'm sure he'll be impressed. :) Good news: looks like as an individual you can't get more than three years in jail, though the $350K fine is kind of steep. (It's $10 mil if you are a corporation. If that doesn't clean you out, the triple damages will...) You know, if there's a whistleblower reward for this kind of stuff, WW, you might be able to retire to a warm climate and sip drinks with umbrellas all day. Never have to validate your HTML again... ;)

Actually, most of the references you find for this law are academic rather than dealing with actual cases - probably why the guys who should know better figure they can get away with it. I think prosecutions are quite rare, and a penny-ante bid rigging scheme isn't likely to get a federal prosecutor salivating.


 8:01 pm on Aug 14, 2003 (gmt 0)

Hi everybody,

Been lurking for about a year and I've learned an awful lot. Overture's Auto-bidding tool is truly wonderful..for Overture. One of my clients had the same problem, so we settled for second place and the bidding war ended.

Glad to be here and thanks for all the lessons!


 8:06 pm on Aug 14, 2003 (gmt 0)

Welcome, magic77! Let's hope this is the first post of many!


 10:26 pm on Aug 14, 2003 (gmt 0)

Um, everyone seems to be looking at this from a Poor-Little_Ovie point of view in regards to who is hurt by colusion. I'm beginning to think, half the submitters here are OV shills.
Let's look at the other point of view. The fact that Ov has raised the minimum bid first to .05 and then to .10 ought to set off all the bells and whistles with the "gaming strategy" people. Anyone the least bit familiar with stats and casino methods will know that limiting the minimum (and in some cases limiting the max) bid leverages the odds (and as in this case profits) in favor of the house. In the simplist words, instead of previously bidding .01, .02, .03, for the top three positions, now eveyone's forced to leverage up their bids to .10, .11, .12 so the house (OV) wins 10 times the prior stakes, no matter what the bidding war brings! And it doesn't take as many bidders to get the war into the price range OV wants to see to begin with.
Next, you don't think OV added all those expensive options, that let you CONSTANTLY monitor bids and RAISE them when your competitor does just for fun and merriment and least of all YOUR benefit? Heck no! They WANT you to bid ever-more and to force others to so likewise!
And guess what, now that OV has gotten away with spiraling up the min bids from the oricignal .01, I know of at least two other PPC which have followed suit in the last few months.
If anyone ought to be sued for collusion it's the PPCs. Whatever happened to the free market setting the fair market price of products? Anything else is price-fixing in most lawbooks! If there simply is noone willing to bid for a term (no demand), than what is it really worth? What about all the terms NOONE is bidding on because they aren't willing / can't afford even to bid .10 whereas they might .01. In those cases it is the searching public losing the benefit of those businesses, with the ultra-low overhead and low, low prices whom they could have found!
I say the PPC SEs are the culprits in any sort of price fixing if there is any and if they were ever to lay a collussion lawsuit on anyone I knew, the above would be my countersuit!
No I'm NOT an attorney, but I play one whenever I feel like it :-)



 10:44 pm on Aug 14, 2003 (gmt 0)

MikeNLM, I'm not crying any tears for Overture, but I think they raised the minimum bids simply because they judged that it would be profitable to do so, i.e., they would gain more revenue than they would lose. The fact that a few other PPC providers have increased their bids doesn't imply collusion, but rather a follow-the-leader strategy. Overture is under no obligation to let the market decide their pricing - they could use a flat rate of $1 per click if they wanted to, but I'm sure the auction approach is better at maximizing profits. You don't see THEM complaining about bidding wars! ;)


 10:56 pm on Aug 14, 2003 (gmt 0)

I have to quote it verbatim :

So I changed my theory on this stuff. I dropped all of my bids as low as possible so that I still stay at least at #5. I wrote some really good ads and found some keywords that nobody else was bidding on that actually return more visits than the more competative terms even though they are not searched as often. Funny thing is I'm still spending the same ammount in clicks per day at the lower bids, you know what that means? More Clicks!

Here's the real trick to Overture. Don't throw money at it, don't fight for the top position, just find out what ads work for you, make sure they are on the first page and find those great keywords that nobody else is bidding on.

I take my hat off to you too much information. You have encapsulated 100% the whole ethos of PPC.

Personally I blame the software vendors for encouraging this "competition killing" type of strategy.

If companies are that keen to work together why don't they pool their advertising budgets, and share the enquiries that come from the one ad that runs?

Crazy, crazy, crazy.

For a bunch of lawyers to have the time to sit around for hours managing PPC campaigns, what does that tell you? That would have to be the most expensive campaign managment you could get.

Crazy, crazy, crazy.

Learning Curve

 12:40 am on Aug 15, 2003 (gmt 0)

Dmitri010, You're in a great position! Stay at #3 so the competitors have to pay top dollar.

Then find the cheaper clicks as mentioned above and, of course, milk the heck out of Google Adwords. You can outmaneuver these law office stiffs.

And be sure to tell your client that you're forcing his competitors to pay $1 per click while you've got his average CPC down to X cents.

He'll love it. It will appeal to his egotistical nature and this whole stupid mess is caused by the lawyer-sized egos.


 3:12 am on Aug 15, 2003 (gmt 0)

You guys are going about this whole thing wrong. The focus should be on quality, pricing and what services you have to offer of your website and not how much your competitor is paying.

In my experience comparison pricing networks are much better than ppc search engines.

A customer will not go to the highest ppc bidder but will take the time to review customer comments and as well as prodcut base price.

For example if abc and xyc companies have the top bids on a shopping engine a customer will look at their products and then 99.9% of the time will search for best possible price on that product and compare it with other merchants on that site as well as the company's history reviews.

So on a shopping engine if you have the best product base price and a customer selects best price, if you are price competitive your results will come to the top of these search results regardless of what is the going bid.

So if you are paying a nickle and your competitor is paying a dollar, if your price is better your search result will come to the top.

In conclusion, if you concentrate on what makes the customer happy, trust me, they will come and find you.


 5:19 am on Aug 15, 2003 (gmt 0)

>You guys are going about this whole thing wrong.

Yup....you sure are. WebWoman...think "directory"....Golden opportunity being wasted here;) I doubt the legalities will ever come back to bite you in the butt, however the "directory" solution solves those and makes money for everyone but Overture. Who really wants to pay another middleman anyways?

Dmitri010....your enemy is not your competitor(s) it is Overture. Maybe you can't do a WebWoman type deal if the competitor is hostile, but you could try an alternative strategy not related to Overture that would surely put several nails in their coffin;)

In my tests Overture Sponsorship captures less than 5% of seaches verses regular SERP's. Fighting over the 5% is really pointless, aim at the other 95%+.

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