POV: First-Price Auctions
What is happening
Google has recently announced that by the end of 2019, it will move to a first-price auction model for all programmatic ad buying on its Google Ads platforms. With this announcement, Google joins competing exchanges including Index Exchange, OpenX and Rubicon Project, who all began adoption of a first-price model in 2017.
What this means
In a first-price auction, the participant that places the highest bid wins; the final price is equal to the amount of the winning bid. Initially, this seems less complicated than the second-price model traditionally associated with programmatic ad buying, in which the winner pays the “second price”, typically a penny more than the second-highest bid.
Though more straightforward, the initial transition from second-price auctions to first-price auctions proved costly for advertisers, who had to adjust bid strategies and implement advanced techniques such as “bid shading” to keep their spend levels down.
Google’s announced transition effectively signals that first-price auction environments are now the industry standard for programmatic advertising. The nature of Google’s position entails that all other inventory providers are likely to follow.
Just like the initial announcements back in 2017, Google’s adoption of first-price auctions has been met with fanfare from publishers, who expect to now see a windfall. At the same time, the announcement created a stir among advertisers and service providers who buy media on their behalf, who now have the burden of adjusting their media buying strategies.
With this announcement from Google, the industry is getting flashbacks to 2017. Advertisers are anticipating that programmatic advertising will become more expensive overnight.
Perhaps controversially, IgnitionOne believes that this shift is a positive for advertisers, with potentially lower effective overall pricing (eCPM) over time. A few factors will drive this: Firstly, it is now possible for advertisers, DSPs and media buyers to deploy a unified bidding strategy throughout the ecosystem. Secondly, pricing is currently more expensive than ever before—publishers will not be able to raise price floors and stay competitive. Lastly, the availability of auction pricing data means that marketers and service providers will enjoy enhanced transparency over pricing, which prevents unscrupulous behavior throughout the supply chain—or at least makes it easier to spot.
In short, pricing will improve, online costs-per-action will drop, and marketers will benefit overall.
What IgnitionOne can do
As champions of transparency in the programmatic landscape, IgnitionOne has long advocated for first-price auctions. Our platform has supported such environments, and our teams have developed extensive experience since first-price auctions first emerged nearly two years ago. Frankly, with the industry gradually moving toward the first-price auction as its standard, we look forward to mastering a unified bidding strategy.
Ultimately, we feel that with more fair market pricing, marketers will be better able to optimize their budgets and work with more efficiency than ever before.
Questions or comments?
Reach out to your IgnitionOne Account representative or send us a note for more information.