It’s official, Google has begun its migration to first-price auction. They will make the move in phases, and by the end of July, all AdX inventory will be first-price, and the programmatic landscape will have made a major shift.
From First to Second
For years, the RTB arena has been governed by a second-price auction process whereby bids in an auction are collected, and the highest bidder wins the impression, but only pays $.01 higher than the second highest bidder. It was a great system to allow buyers to overbid without the risk of overpaying, and created layers of muddling complexity. However, since the advent of header bidding in 2017, more and more SSPs have been moving to the more transparent first-price model. Google is the latest to follow suit. According to Sam Cox, Google, the increasing intricacy of the RTB marketplace necessitates the move to first-price auctions.
In the first-price auction scenario, buyers compete in a single auction and pay the actual price they bid. Bids are not shared before the auction nor will they serve as a floor price for another buyer. Everyone competes on the same footing. In short, less complex, more transparent.
Changing the rules of the game means changing the way you play. In the beginning, volatility will prevail, and publishers will likely benefit from some uplifts in CPMs. Then, advertisers not wanting to pay higher prices will start more selective buying. Thus, publishers will see lower fills to compensate. Price flooring strategies will need to change. You don’t want to risk losing revenue if bidders drop out of the auction for excessive pricing, but you also want to prevent buyers from lowering their bids too far.
Header bidder stacks will still be fundamental to increasing competition, but they will need to be better optimized. Publishers need to work towards building as much unique, as opposed to duplicate, demand in their stacks. Make stacks lean on the top, and move others to a hybrid prebid set-up with server side as well.
As always in the RTB world, the smarter players will get the bigger slices of the pie. We’ll be proactively working with all our publishers to make sure they get their share, and we’ll be back in the blog with more stories as we navigate the changes. Stay tuned!