It was announced last week that Google’s Ad Manager platform would be moving to a first-price auction model. Here’s what that means…
Today, programmatic advertising is run much like an eBay auction. Advertisers define the audience they’re looking to reach through geo, demo and behavioral attributes. Then, they budget and bid on applicable impressions to reach the audience they want in the desired context. Bids are placed on impressions with base and max limits per 1000 impressions set. The ad exchange analyzes the bids and awards the impression to the winner of the real-time auction.
Currently, all major ad exchanges work on a second-price auction model, which awards the winner the impression at $.01 over the second highest bid. In Google’s new first-price auction model, the winner will pay their actual winning bid amount, which may be many cents or even dollars higher than the second highest bid.
The move comes as a response to publishers and developers wanting more value for their inventory. For marketers who have relied on the mechanics of a second-price auction to intuitively provide them the best winning price, bid amounts will need to be audited. The change may result in significant increases in overall ad revenue for publishers for some time. But as marketers evolve, so will their bidding strategies. Lofty max bids put in place to ensure winning more auctions will be scrutinized - therefore reducing future max bids - and ultimately normalizing paid pricing once again.
PlaceWise’s take on this change is cautiously optimistic. Since we execute programmatic media buys through a demand side platform that aggregates multiple exchanges, we are not single threaded through Google Ad Manager and can continue to operate on second-price auction exchanges as normal. Special bidding practices will become evident for Google impressions as the marketplace reacts to the changes. Our ability to offer high quality impressions at our existing rates should not be greatly impacted. We believe in a fair marketplace and hope the change is good for both publishers and advertisers in the long run.