Practice Prize Paper - PROSAD: A Bidding Decision Support System for Profit Optimizing Search Engine Advertising

T paper reports on a large-scale implementation of marketing science models to solve the bidding problem in search engine advertising. In cooperation with the online marketing agency SoQuero, we developed a fully automated bidding decision support system, PROSAD (PRofit Optimizing Search engine ADvertising; see http://www.prosad.de), and implemented it through the agency’s bid management software. The PROSAD system maximizes an advertiser’s profit per keyword without the need for human intervention. A closed-form solution for the optimized bid and a newly developed “costs-per-profit” heuristic enable advertisers to submit good bids even when there is significant noise in the data. A field experiment demonstrates that PROSAD can increase the return on investment by 21 percentage points and improve the yearly profit potential for SoQuero and its clients by E2.7 million.