TechCrunch is losing it

Don’t get me wrong. I love TechCrunch. It’s a great place to get your daily dose of tech updates. But when it comes to reading an “expert” opinion on a topic; Techcrunch, more often than not, falls way short of my expectations..

For example, see this posting about the change in Yahoo search marketing (YSM) reserve price. The conclusion drawn by the writer was so ridiculous that it prompted me to come out of my hibernation and challenge his views.

Just to give you some background – when advertisers bid for keywords in YSM, they have to specify a bid amount higher than the reserve price (or minimum bid) mentioned by Yahoo. Until last week, this minimum bid was a fixed amount of 10 cents for all keywords. But as per the recent update made by Yahoo, this minimum amount will be more dynamic and would depend on two things – a) advertiser’s ad quality and b) the keyword’s worth determined by Yahoo.

That sounds like a nice initiative, doesn’t it? Apparently TechCrunch’s expert bloggers have a problem with it. Here is what they infer from this move – “What is curious about this move is that it suggests that many keywords on Yahoo get bought at the minimum price, without any real competitive bidding going on. After all, if at least two advertisers are bidding for a keyword that means the minimum bid is no longer an issue. So it makes you wonder how effective Yahoo ad auction system is as a market. For a market to exist, there needs to be at least two bidders……..

Conversely, the advertisers with the highest click through rates will now be in a position to buy up keywords below the point where lesser advertisers even hit their minimum bid. And that is not really a market either.”

Wow! Someone who has even spent 5 mins in search advertising can point out several flaws in these few lines. Let’s see how many you can get before reading further.

To start with, “minimum bid” is a very well known concept in Google adwords, which is the number one search marketing marketplace. And even Google calculates it dynamically for each keyword and advertiser. So as per TechCrunch, Google’s keywords must be getting bought at the minimum bid and there is no market for Google keywords?

(I'm not suggesting that everything Google does is right. Wanted to point out the flaw in "there is no market" argument)

Forget Google or Yahoo, very rarely would you get a chance to participate in an auction that doesn’t specify a minimum bid. Be it bidding for those stupid items on your Kingfisher flight, or buying items in eBay or even bidding for cricketers in IPL. So are all these markets non-existent?

Another point to note is both Google and Yahoo for a long time have been taking into account advertiser’s “quality score” in the ranking; which means an advertiser with high quality score can bid low and still get a top rank. The recent change by Yahoo is in the same spirit and it gives advertisers with high quality score more flexibility on their minimum bid. So the point about good advertisers beating the lesser ones is nothing new. Google has been doing it for a long time. Yahoo implemented it during panama launch. Other search marketing networks have implemented it long time back as well. But as per TechCrunch “this is not a market either”.

Now, let’s get into a slightly more subtle point in this search marketing bidding models (you would expect any professional blogger in this domain to know this though). As an advertiser you don’t pay your actual bid value per click; the amount you pay is different from the bid amount and depends on what the next guy is bidding and your relative quality score. See this Google help page for more details. So if one guy is bidding really low (presumably the guy with high quality score), this would affect the price paid by all other advertisers for the same keyword (because the 2nd guy would bid low knowing that he wont get the top rank anyway, which would mean the 1st guy have to pay low .. you get the drift). Having a minimum bid prevents this cycle from getting worse.

Finally, some advice to TechCrunch - do bit more research on the topics you are writing about (unless, of course, you just copy paste the news from the official blogs; which in any case is exactly what you do most of the time). For this topic I’ll suggest read a bit more on auction theory, reserve price, check out how Google’s adwords, the more popular and dominant bidding model, works. Stop criticizing Yahoo! Just for the heck of it, being number 2 in a lucrative industry like search marketing is not bad at all.