Yandex Auction Changes Predicted to Result in Huge ROI Increases
As of September 1st, Yandex plans to provide a more transparent bidding process for pay per click advertisers, switching from its existing GSP (generalised second price) to a VCG (Vickrey-Clarke-Groves) auction system with the objective of increasing the incentive for advertisers to bid competitively as opposed to strategically.
What’s the Difference?
GSP (old / current system) - Each bidder places a bid. The highest bidder gets the first position, the second-highest, the second position and the third highest the third. This means that the highest bidder pays the price of the second-highest bid plus a bid increment defined by Yandex, the second-highest bidder pays the price of the third-highest plus the increment, and so on, as it’s illustrated in the below graph:
One of the quirks of Yandex PPC has been that the ‘second price’ auction system has made appearing in higher ad positions within a given block of ads actually less attractive to advertisers focused on the efficiency of their budget.
Appearing as the third result for example in the premium ad block can still deliver significant traffic, but at a far smaller cost than appearing in the first or second positions. Over a large enough scale, this can often add up to a huge difference in ROI. To date, this system has resulted in a noticeable lack of incentive for advertisers to increase their bids once they occupied their targeted spot.
This compromised both the effectiveness of Yandex’s advertising model as a method of revenue generation for the business and the amount of paid traffic that advertisers could expect to see from the search engine if they were committed to keeping their campaigns as efficient as possible.
VCG (new system) - Yandex is switching to a system more comparable to Google AdWords in which advertisers submit bids that represent their valuations for keywords, without knowing the bids of the other people in the auction. Yandex is also introducing a system that will remove the perceived cost barriers from advertisers bidding for higher traffic and better ad positions.
A ‘baseline’ cost will be established for however many clicks the advertiser in third position achieves. All three advertisers will pay the same in terms of CPC for this number of clicks.
There will only be an increased CPC for the advertiser in second place, for the number of additional clicks that this advertiser achieves above the third place ad, and the same is true of first place over second.
First and second place will pay the same CPC for the additional clicks achieved over the third place ad and in turn, the advertiser appearing first will again, pay a higher CPC for the number of clicks achieved compared to second.
So the first place advertiser therefore will pay 3 different rates, based on the number of clicks achieved by the competing second and third ads as it’s represented in the example* below:
In the example above, advertiser C will pay 2 rubles per click. Advertiser B will pay 2 rubles per click for the first 50 clicks, like advertiser C, and 5 rubles per click for the incremental 5 clicks. Likewise, advertiser A will pay 2 rubles per click for the same number of clicks as advertiser C, 5 rubles per click for the same number of clicks as advertiser B, and 7 rubles per click for 20 incremental clicks.
This new dynamic will provide far greater incentive for advertisers to bid competitively for higher positions, as there is now no increased cost until you are driving more traffic than your competitors. Advertisers will therefore be encouraged to bid competitively for the primary positions, as opposed to bidding strategically to secure the cheapest position in their targeted ad block.
New Relevance Ranking Formula
Similar to Google’s Quality Score calculation, Yandex will also begin applying new relevance factors to paid search results, helping to drive traffic to sites that it recognises as having high quality, relevant advertising messages. In a recent blog post, Yandex wrote:
Depending on the keywords, it will become cheaper for advertisers to secure the top ad position for keywords that are highly relevant to their offering, and more expensive for any that aren’t as relevant.
As a certified partner of Yandex, Forward3D (and its international division Locaria) has been provided with a comprehensive analysis by Yandex of the impact that its new auction methodology for PPC bids will have on the performance of some key accounts in the retail and travel industries.
Yandex has carried out multiple tests and simulations to see how key Forward3D accounts are likely to be affected by the new auction system.
The analysis has predicted clicks for these accounts to increase by 10% on average and for CPCs to decrease by up to 40%, which makes Yandex a far more effective platform from an ROI perspective, even taking into account Russia’s current economic situation.
Factoring in updated bid strategies specifically geared towards the new auction system, these figures could even be surpassed.
The changes are going to be rolled out at the end of August 2015, so current advertisers have time to make preemptive adjustments to their Yandex.Direct bidding.
Before learning the differences brought about by the new system and how competitors are reacting, advertisers may choose to opt to enable automatic bidding strategies such as Average CPC or Average CPA until they can establish more strategic methods.
The Yandex interface will be updated to reflect the system changes providing additional reports on auctions bids and actual debited prices. These reports are also availalbe via the Yandex.Direct API, which Forward3D are utilising to analyse the impact at scale.
Alexandra Mezhonova – Eastern Europe Marketing Manager, Locaria