Having built 3 self serve ad platforms (at Overture, Fox and Adly) and been a customer of over 50 others (yes there are over 50 self serve ad platforms), the one issue that seems to arise in the lifecycle of every new cost per click ad platform is that of the minimum cost-per-click bid.
The decision to have a minimum bid seems to be driven by one or more of the following 3 myths:
- Myth #1: “If we don’t have a minimum bid, everyone will bid $0.01 and we’ll make no money.”
- Myth #2: “If we don’t have a minimum bid, our sales people will lose sales to the self serve channel.”
- Myth #3: ”If we don’t have a minimum bid, we’ll attract a bunch of shitty advertisers.”
The reality is all of the above are bullshit and should be obvious given that the three largest self serve ad platforms ever created (Google Adwords, Facebook Ads and Microsoft AdCenter) each have minimum bids of a penny, each are making more than a billion dollars per year and each have huge direct sales and online sales sales organizations successfully co-existing.
1. Minimum bids discourage innovation.
All of the most successful self serve ad platforms in the history of online advertising scaled because of the early adopter entrepreneurs, who sensing an opportunity to create value, dived in head first: For Overture and AdWords it was SEM shops like Efficient Frontier (now part of Adobe) and iProspect; For Facebook it was Ads API partners like TBG Digital and AdParlor; For Twitter its going to be a new breed of social agency. There’s no way these entrepreneurs would have dived in had the minimum bids been $0.50 as there’s simply no margin for innovation as a 3rd party.
2. Minimum bids lock out entire customer segments.
Imagine Facebook Ads had started off with $0.50 minimum bid it. It would never have got off the ground. The early advertisers on the platform in 2008-09 were social games developers like Zynga and Playfish. Game development was in its infancy, nobody knew how much a user was worth. It was crucial that game developers be able to acquire users as cheaply as possible in order to provide enough of a runway to optimize the payback period. Fast forward to today and its the same story all over again on Facebook, this time on mobile. Marketers are still figuring out how much an iOS app install is worth. Without a minimum bid, marketers can experiment cost efficiently. Its crucial to figuring out what the inventory is worth.
3. Minimum bids cost you coverage.
Not all user targets generate the same ROI, so having a minimum bid prices the market out of covering all your inventory. In paid search, there are generally two types of queries – informational and commercial. Commercial searches have always been very competitive, due to users having high intent to purchase immediately. Informational searches used to have virtually no competition, as marketers saw lower click-to-conversion rates that did not justify the $0.10 min bids that Google and Overture used to have. But once those bid floors were eliminated, marketers started to see that they could use informational queries to drive the user to a more content-rich landing page and from there into the purchase funnel.
4. Minimum bids keep your sales team focused on the right customers.
A common objection from your sales team is that if there’s no minimum bid on the self serve platform, the salespeople won’t be able to sell at rate card. There are a couple of reasons why this is completely wrong. Firstly, if the client is willing to use the self serve platform instead of going through a salesperson, clearly that salesperson is adding no value and should be directed towards clients that aren’t willing to self serve. Secondly, having an active marketplace of self serve advertisers creates a baseline eCPM below which salespeople cannot sell because their clients’ campaigns will no deliver.