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Why Position Bidding Wastes Money

It’s remarkable that in 2008 there are still many bidding systems in use by SEMs and in-house PPC managers dedicated to “finding the right position” for each keyword. These position crawling systems guarantee inefficiency and lost opportunity; to put it concisely: they’re playing the wrong game. Here’s why:

  1. The value of traffic doesn’t vary by position. Careful study on our part, confirmed by University Statistics researchers, has proved that the conversion rates (orders per click), average order sizes, and margin percentages do not vary by position on the page. In other words, the people who click on ads at the top of the page behave the same way on their visit as the folks who click on the same ad in the middle of the page or at the bottom of the page. The quantity of traffic is much greater at the top, but the quality is almost exactly the same. In fact, the quality in position 1 tends to be slightly lower than position 2, and the quality improves slightly as the ads get lower on the page — these are small effects that can be ignored for practical purposes.
  2. Value of traffic times the percentage of value the advertiser can afford to spend on marketing = the bid. Maximizing the top-line within some efficiency constraint — what we’re typically asked to do — is “simply” a matter of measuring the value of traffic on each ad and bidding according to the above formula. That will place the advertiser’s ad as high on the page as they can afford to be, capturing the most traffic for each ad within their efficiency needs. If that bid places an ad in position 1 — that’s great, position 6? Okay, position 15? Oh well. The position is what it is, and is determined by what your competitors choose to do at any moment.

How do position crawlers work?

Largely, trial and error through the following steps:

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