Are PPC Engines rigged games?

[Isitso]

Can anyone offer a resource or explanation for why these do not occur? I'm not saying they occur, but they have crossed my mind. Would they maximize profit for the engines if they are not prohibited by regulation?

1. A continual inexhaustible stream of new overly optimistic bidders make keywords unprofitable for all.

2. The engine, knowing your sale value, increases the required bid to maximize their share of sale cost.

3. The engine picks winners by sending them traffic at lower bid prices than they charge other bidders.

4. The engine maximizes bid price at various levels according to individual bidders' value of sale and bid price tolerance, thereby simultaneously receiving payments for bids at several prices.

[NickMNS]

1. A continual inexhaustible stream of new overly optimistic bidders make keywords unprofitable for all.

Possible in the short term. Progressively less probable as time goes on.

2. The engine, knowing your sale value, increases the required bid to maximize their share of sale cost.

How does the engine know your sale value? Let's say it did, by say mining Analytics data, and thus taking the sale values entered by the user. That would be great! In fact it would be awesome, because if that were the case you could game the system by entering the a lower sales value and then you would, based on your logic, pay less for your ads.

3. The engine picks winners by sending them traffic at lower bid prices than they charge other bidders.

Yes this is the case, at least in terms of Google. The bids are won not on price alone but also based on a quality score. So if you have a low quality score you should expect to pay more than a competitor to win an auction. Remember that Google only get's paid if an ad is clicked, as such Google will favor ads that have a higher probability of being clicked. Otherwise one could bid $100 for a single click and display an ad that was so terrible that no one would click, this would ensure that your competitors are prevented from winning any auctions and would cost you nothing as your ads are never clicked. Clearly Google would also not be making any money in this instance and that's why there is a quality score.

4. The engine maximizes bid price at various levels according to individual bidders' value of sale and bid price tolerance, thereby simultaneously receiving payments for bids at several prices.

That sounds like fraud. I'm not sure I understand, are you saying that the network simultaneously sells the same ad impression to multiple parties?

I would add:
#5. An intensely competitive environment would force prices to the point where profit margins would be razor thin or non-existent. Dropping out of such a market place would be risky as it then will allow your competitor to gain a significant advantage which could destroy your business. As such one is forced to continue to compete and potentially compete past your break-even point. In other words paying for ads at such a high rate that each sale generated is now returning a loss. In such a situation all parties come out loosing, except one Google, (or other ad network) which is maximizing its profits.

[Isitso]

Thanks NickMNS

Re 2: That would be great! In fact it would be awesome, because if that were the case you could game the system by entering the a lower sales value and then you would, based on your logic, pay less for your ads.

Nice idea. Yes, via analytics data. Although, if they can index the www, they may be able to read your price on your site for businesses that publish prices.

Re 3: I had in mind something more nefarious. The number of those created winners is only sufficient to create enough word on the street of profit to allow 1. and 2. to continue.

Re 4: The engine maximizes bid price at various levels according to individual bidders' value of sale and bid price tolerance, thereby simultaneously receiving payments for bids at several prices. So, the engine with enough bidders for word A, spreads around the impressions to sell clicks on word A at $1 to some, $5 to others, and $15 to others. The prices are set by data held by the engine.

Re 5: This is similar to 1.

[NickMNS]

Re3: What you are describing sounds a lot like the common "start-up" business practice which has been used by companies such AdSense, Uber, where in the early days of the business, the business subsidizes its users to ensure that they derive a high value from the service. For Uber, they would pay the drivers a high "rate", then as more drivers signup to the service, the rate is gradually reduced. By rate, I don't necessarily mean $/hr or per km, but it could be the number of fares available to serve within a given time period, or the total number of kilometers available to be driven. Ideally, the rate reduction needs to occur slowly to foster the frog in boiling water effect. This would allow the service to continue to recruit more participants while slowly starving the entire ecosystem. Is this occurring now? It certainly has in the past, but I think now we are more in starvation phase.

Re4: Certainly there are different prices for the same keyword, as each auction is unique and to some extent statistically independent. The player that just spent 10$ or 15$ for a click for a group of clicks will have likely consumed the entire budget on those clicks and may not return again to the auction table, so timing bids and knowing when to hold a bid is paramount.

[Isitso]

OK. Thanks NickMNS.

[tangor]

@Isitso ... Welcome to Webmasterworld! Jump right in and have fun ... and get answers, or pose questions that make the rest of us think! Glad to have you!

[phranque]

welcome to WebmasterWorld [webmasterworld.com], lsitso!