First Price vs. Second Price
The second price auction has been the most widely used auction method in the brief history of programmatic buying. During a second price auction, an advertiser would pay $0.01 more than the next highest bidder for an impression. Proponents of the second price auction contend the price is more reflective of the true value of an ad. As yield optimization tools and header bidding rose in popularity, so did the first price auction. These auctions were simpler to execute as the winning bid would pay exactly what they bid.
Why Is Google Changing? What is Actually Changing?
Google is largely changing due to shifts in the overall market as well as to close loopholes in the ecosystem. These changes will not come overnight; Google has a plan to phase in the first price auction slowly over a few months to minimize the impact of the shift. Here is what Google has to say on the topic:
“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. We expect the transition to be complete by the end of this year. By switching to a single first price auction, we can help reduce complexity and create a fair and transparent market for everyone.”
We expect short term volatility in clearing prices as the ecosystem is able to adapt. This short term rise is expected as some advertisers currently set bids higher than they expect to pay because they are simply trying to pay $0.01 more than their competitors. Until these bids are lowered you will see some advertisers greatly overpaying for ads until they are able to reconfigure their bids to match what they believe the individual publisher’s inventory is worth.
Who is Impacted?
This shift in how the largest inventory provider runs its auction will ripple through the programmatic ecosystem. Advertisers can expect a short term volatility in clearing CPMs, but this will settle down as algorithms are reconfigured. The players that will be hit the hardest, perhaps a motivating factor for Google, are header bidders and yield optimization companies. These companies thrived off of Google utilizing a second price auction, as they were essentially looking for ways to yield a higher CPM than the typical auction could.
What is Coegi Doing?
What this means to advertisers is that Coegi will be starting our bids lower than before and increasing them to what we have determined as a fair price to make sure we are not overpaying for impressions; we sit on four years of historical data which will allow us to key in on historical clearing prices. While Coegi does not forecast a large impact, we will continue to monitor changes using our proprietary campaign performance tracking tools to alert us if we are seeing CPMs exceed the contracted rate.