Yahoo! Search Marketing (YSM) no longer has a $0.10 minimum bid according to the Yahoo! Search Marketing Blog. Minimum bids for keywords are based on quality and keyword value. Quality means they reward ads that get clicked on more relative to competitors with lower minimum bids. My experience with AdWords has been that this doesn’t matter a lick. Ads that get clicked on a lot are ranked higher and have low minimum bids but it doesn’t matter because you have advertisers lower than you for the keywords you’re bidding on. Then once you lower the bid to the minimum, the minimum starts going up again. This shouldn’t happen because the system is supposed to normalize for position, but from my experience, it does. I’m guessing Yahoo! will be the same.
The important factor is keyword value. AdWords made a lot of “long tail” terms more expensive by setting minimum bids higher – YSM might do the same. It might also affect some high traffic terms; the whole thing is sort of a mystery there. So for example, if I search “irs” on Yahoo!, I see more than 10 advertisers. On Google, I see one. This is probably because of minimum bids.
When you start thinking about broad matching (or advanced match), you start realizing how complicated the whole system is. It’s easy to look at a broad or advanced matched keyword phrase and forget that represents a whole lot of queries. AdWords claims that the keyword variations your broad matched term shows for don’t affect your minimum bid for that term. If your ad doesn’t get clicked enough (not sure how they define “enough”), it stops showing for a variation. YSM doesn’t go into enough depth about their system to figure out how it works. If you have an advanced match term that showed for a lot of different queries, it seems possible that it’ll stop showing for as many advanced matches. If they figure an advanced match query has high value, and you’re bidding your minimum bid on a term that has lower value, it seems possible that it’d stop showing for the higher value advanced match query. So there’s something to look out for, but YSM doesn’t mention anything about it, so I doubt it’ll be a big deal.
Minimum bids just work to push advertisers bids up. If the bottom advertiser now has to pay $0.30 to keep his/her ad active, and decides to do it, the next advertiser will have to pay more as well if they want to keep their position. Now that it’s more expensive to keep that lower position, they might decide that it’s more profitable to move up in the rankings and to get more clicks at a slightly more expensive price. Minimum bids put pressure on advertisers to bid closer to what a term is actually worth for them, closing in on their margins.
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