“In order to help simplify programmatic for our partners, in the coming months we’ll start to transition publisher inventory to a unified first price auction for Google Ad Manager” – states an announcement by Google’s Group Product Manager Sam Cox published Google at the very beginning of May. “By switching to a single first price auction, we can help reduce complexity and create a fair and transparent market for everyone.” The article was later followed by a detailed schedule (regularly updated) and some best practices and guidelines to prepare and monitor the transition.
What is about to change?
First price auction is nothing new when it comes to programmatic. Most major platforms have already switched from second to first price auction starting around 2017. In second-price auction, from bids of 2€, 2,5€ and 4€, the highest bidder pays the second highest price plus one cent – 2,51€ in this example. First-price dynamics on the other hand is something we are more familiar with – if you bid 4€, you pay 4€.
Common path for a single ad today is two subsequent auctions – a first-price auction taking place within header bidding with highest bid being passed on to compete with Google on second-price basis. Beginning in June, traffic in Google Ad Manager has been gradually transitioning into first-price auction and by early September there will be only one unified auction with all players competing simultaneously for a single impression. All players battle on a level playing field. It is worth mentioning that above is true only for video and display ads. A substantial part of Google auctions – Google Search, AdSense and Youtube will remain in the second-price model.
Floor prices have been one of the most important tools for publishers, protecting their inventory from being sold below its value. Setting different floors for different buyers or ad formats or to other dimensions has been a standard practice. Now, as unified pricing rules come into force, all floors will be set in one place and for all partners. Initial restriction of 100 unified pricing rules per network has been extended to 200 due to major pushback from publishers.
Lack of detailed reporting on bid data from Google Ad Manager has always been a major issue. Buyers have been happily using their right to opt out of sharing details of their offers. This will no longer be a possibility in the name of increasing transparency.
A little turbulence
Since the announcement, the industry has seen many comments on possible outcome of the coming changes. The general agreement seems to be that we can except “a little turbulence” – initially, a surge in revenue coming from advertisers not adjusting their bids to the new dynamics in time, leaving them overpriced, followed by a drop caused by underbidding in an effort to even out the loss. Equilibrium will be reached once all players settle in the new reality.
Demand players’ main challenge will be to learn how to to correctly estimate the real value of each ad impression and adjust their pricing strategies accordingly. Rise of bid-shading and other bid optimization techniques seems to be inevitable. Buyers need to find a middle ground between bidding as low as possible and reaching sufficient probability of winning. The biggest question here, that is yet to be answered is: If advertising budgets remain the same, what will change in terms of position of Google versus other SSPs?
For publishers, adjusting floor prices strategy will be crucial. A thorough look into newly available full bid details should help in making informed choices regarding not only the most optimal flooring levels, but e.g. which demand source brings in the most revenue and which should be eliminated from the setup. As hard as it sounds, remaining calm is the most important in this transition. It takes time for changes to take effect and show up in revenue, so random and fast changes in flooring strategies are not the way to go.
As with any major scale change, there is no sure way to predict results. Only time will tell who will benefit the most or what will be unexpected side effects. For now, everybody needs to stay open and embrace the new with vigilance and adaptability.
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