What Google’s Move to First-Price Auctions Could Say About the Future Landscape of Programmatic
More changes are coming to the programmatic landscape as Google shifts its auction to a first-price model, and more significantly, introduces a unified ad auction within Google Ad Manager.
The news, first announced earlier in March, created a flurry of speculations about the more immediate winners and losers of the change, but relatively little was said about what this could mean for the future of programmatic auctions and the players and strategies involved. And, of course, the caveat to all of this is that many of us in programmatic are accustomed to living in an era of first-price auctions, as other exchanges, like OpenX, Index Exchange, and Rubicon began rolling out first-price auctions a couple of years ago. The difference is now Google, arguably, has the dominant hand in a potential re-consolidation of the entire auction landscape – their exchange* accounts for about half of the programmatic display market, while according to various sources, their ad server owns virtually the entire market.
But first, a very brief overview of how we got here:
In the early days, the programmatic auction ecosystem was fragmented across a large number of sellers, and publishers needed to work with them all to monetize their inventory. The standard model of second price auctions hurt both buyers and sellers because the highest bidder didn’t always win. For example, an initial auction with bids of $10 and $8 would send a winning price of $8.01 to the final auction, where it could then lose to a $9 bid.
Simultaneously, Google was building out its ad server to gradually become the dominant player in the space. This spurred the rise of its “last look” (last dibs) advantage, which allowed its own ad exchange to host the final auction (and outbid the $8.01) – a practice that was largely criticized by the industry (and was consequently shuttered back in 2017). Subsequently SSPs moved towards header bidding, a tactic which circumvents Google’s ad server to hold a first-price auction and improve publisher yield, but also can be complicated to implement and increase page load time.
Unlike in second-price auctions, where a buyer can bid more aggressively, in the first-price universe bidding aggressively also means you’re going to be paying more aggressively. To counteract rising CPMs, buyers have strategically lowered their bids in a practice called bid shading.
Some initial questions and thoughts that came to our minds:
- Though Google is moving to a first-price model now, if it gains significant control of the auction, will it see an opening to revert back to second-price?
- Many are fixated on the challenges for certain parties, but we’re considering what new opportunities this presents to SSPs and other technology partners in terms of offering a specific kind of expertise, value add, and increased level of sophistication. (think bid shading, with a stronger focus on quality, scale, performance, and data – more on this, later).
The Impact Now
Flash forward to 2019, and we’re back to competing auction types: the world of header bidding and Google’s unified first-price ad marketplace. Which begs the question: What will the impact be on the header bid? If Google remains dedicated to improving efficiencies for buyers and sellers, we may very well see significant investment shift from header bidding into Google Ad Manager. Particularly if Google lowers their take rate amount for their exchange, it’d be enticing buyers to shift where it’s cheapest and sellers to shift where they see they most profit to be gained. If this is to be the case, we could see a lot of SSPs struggle to remain viable as businesses, considering the pressure that’s already put on their margins through the combination of header bidding and bid shading. But don’t count them out just yet – we anticipate SSPs will begin to make moves to counteract the more major threats.
If Google remains dedicated to improving efficiencies for buyers and sellers, we may very well see significant investment shift from header bidding into Google Ad Manager.
And, back to our original question about a possible return to second-price by Google. We believe that yes, the door is very much open for that in the future, if Google plays its cards right and the auction landscape shakes out just so. Many believe that one unified second-price auction is the most efficient auction format (think: search with Google Ads), though the muddle of sellers in programmatic have prevented this from happening. Google could make it a reality by taking control of the exchange market.
Supply Path Optimization – Price, Quality, And Quantity
What hasn’t necessarily been talked about amidst all of this? How the change might impact the number of DSP and SSP partners we’re using, and how advertisers should be thinking about testing the right partners that will add value down the road as Google potentially makes its play. At the end of the day, price is of great importance – but not at the sacrifice of scale and value. For many advertisers, we’re measuring against hard performance goals that we’re held readily accountable for, which is something we’re all keeping top of mind right now.
Since first-price isn’t new, Google’s new auction shouldn’t cause panic if your strategy is already optimized for header bidding. However CPMs will likely still go up for a time, and it will be important to monitor until prices start to even out again. Focusing on tech partners who understand the science of bid shading will keep advertisers ahead of the curve. Those DSPs and SSPs are strong from a data science perspective because of their ability to pair robust auction data (which spans across buyers) with large processing power. They should keep getting better at determining the balance needed to pay the right amount, without losing scale or performance (not overpaying, but also not losing out on the inventory).
Finding the right inventory partners that focus on the correct balance of high viewability, high performance, transparency, quality, and scale, is not a simple or quick process, which is why it’s best to begin it now to work towards an early competitive advantage. We believe this to be a significant opportunity for SSPs to demonstrate the value they can add, in curating quality while ensuring the right prices are being hit.
As the auctions change, we’ll be maintaining close watch of how the landscape shifts, and identifying the best partners to work with to ensure the performance of our clients’ programs.
*Google’s exchange and ad server, previously known as AdX and DFP respectively, merged into Google Ad Manager in June 2018
You May Find These Interesting
What Will Future Data Strategies Look Like? Top 10 Takeaways from our “Managing Complex Change” Series Panel
On August 6th, the agency hosted a panel discussion to dive into what the future data ecosystem will look like, given the intense focus on first party data and how the landscape is changing due to the death of the third party cookie, global privacy regulations and...
This article originally appeared on The Stagwell Group's website. A few weeks back, experts from global brand performance agency ForwardPMX and digital-first creatives Code and Theory led a virtual discussion about key strategies and tactics for Conversion Rate...
Taking place in late July 2020, The Stagwell Group’s Transformation Summit offered a moment in time to look back and reflect on the changes the ad and marketing industry has seen since the start of the COVID-19 pandemic. For brands, the most significant of these...