Databases Reference
In-Depth Information
8
The Serious Game of Bidding on Keywords
All of a sudden, we realized we were in the auction business.
Eric Schmidt
,
Google's second CEO [
1
]
As Schmidt notes in the epigraph [
1
], major sponsored-search platforms are partly
major auction houses. How does this auction affect our frame shop business?
In the course of developing the advertising for our frame shop, we have performed
an analysis of our customers to target our efforts to those most likely to buy our prod-
ucts. We have performed market research, understanding how we will evaluate our
advertising's return on investment. We have also reviewed the concepts of branding,
advertising, and marketing to provide direction to our overall endeavor. Finally, we
have designed our ads to appeal to potential customers and selected the keyphrases
that we want to trigger our ads.
However, we must alert the search engine that we want our ads to appear with
these keywords, and we must also pay the search engine for showing our ads. How do
we do tell the search engine to display certain ads when the searcher's query contains
certain words? How do we pay the search engine? More importantly for the adver-
tiser, how much do we pay the search engine? What is a fair price to pay? How do we
relate this price per keyphrase to what our business makes from the advertising?
We do these things via a bidding process. In this bidding process, we tell the search
engine how much we would be willing to pay if it shows a particular advertisement in
response to a query that we link to a particular keyphrase. The search engine also sets
a floor price.
Where does this keyphrase price come from?
It comes from the workings of an online auction, which is a marketing mechanism
for letting advertisers, as bidders, price the value of keyphrases. The keyphrases are the
triggers for ads on a sponsored-search platform. In this context, the auction is an eco-
nomic mechanism in a formal sense, with allocation processes and payment rules.
Like us, other advertisers want their ads to show with their keyphrases, and these
advertisers want their ads to appear in the “best” position on the search engine results
page (SERP), just like we do for our framing shop.
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