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The Changing State of Programmatic

By: Josh Awerbuck

This quarters’ hot topic has to be Google’s shift to a first price auction. This had to happen. We’ve seen other players like Index Exchange, OpenX and Rubicon make the move from second to first price auctions, but it didn’t feel like first price auction was a true reality until Google made their announcement. Now that they are, this is a good thing for buyers and sellers.

What does it mean? In the world of digital advertising and real-time bidding, first price auctions refer to a model where the buyer pays exactly the price they’ve bid on an ad impression. Second price auctions refer to a model where the buyer pays $0.01 more than the second highest bid on an impression. Think eBay. The problem is, exchanges were never truly running on pure second price. Each had their take on the model, with a few modifications like price floors and hidden buyer fees.

Publishers’ floor pricing strategies for second price auctions will be obsolete after the transition. Google has released a new pricing feature called unified pricing rules that will manage floor prices for all non-guaranteed bidders for all buying platforms. This will require publishers to understand the true value of their inventory and adjust pricing accordingly. There will be a unified first price auction that includes publishers’ guaranteed campaigns and all non-guaranteed bidders. Authorized Buyers and everyone else at the same time. Bids from publishers’ guaranteed campaigns are compared against all other bidders. Non-authorized will have the same opportunities as authorized DSPs. Google will no longer have a “last look” opportunity to pay just above the winning bid after an auction to win the impression. With a unified first price auction Google, like all bidders, will pay the full bid amount.

The first price model should improve transparency and simplify process for everyone. Buyers will know how much they have to bid to win their desired audience and sellers will know what their inventory is worth without having to decipher bid reports.

This is going to be a huge change for the industry. I don’t expect anyone is going to want to be first to jump in head first, don’t be at all shocked if spend comes to slow down for a couple weeks while buyers try to sort things out on their end once the switch happens. Luckily, Google has planned a slow roll out to help. Starting the week of June 10th 1% of Ad Exchange traffic will be transitioned to a first-price auction. Traffic allocation will climb to 5% by late June and by late July we expect all Ad Exchange traffic to be transitioned.

So, what’s in it for Google? It’s been speculated that the move to first price auction will put a dent into header bidding and increase the market share for exchange bidding. Seems like this could happen. Exchange bidding is already extremely simple, but lacks transparency. The unification of auctions gives exchange bidding transparency, while reducing the workload, thus making exchange bidding an attractive solution for publishers.

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