Google’s recent announcement to entirely do away with their second price auction and exchange based dynamic allocation (EBDA) by Q4 2019 follows their decision to sunset ‘Last Look’ back in 2016, which will put them in-line with most DSPs in the ecosystem and help create a unified auction from all demand sources.
The change from first to second price auctions mean Google will go from estimating bid value causing a daisy chain effect when exchanges lose the bid, to showing exactly what an outside source is willing to pay. On the surface, this appears to be an effort on Google’s part to open up its black box and provide more transparency to both the buy and sell side. Not quite…
Second price works like an eBay auction, in that a buyer sets a ceiling rate for your bid but only pays a fraction over the nearest competitor, whereas first price swallows the whole bid a buyer is willing to pay. Good for publishers right? No not necessarily!
Header bidding was introduced to streamline this programmatic auction process and provide publishers a better way to take control of their inventory and decrease reliance on the waterfall or daisy chain ad-stack, by allowing publishers to set up private auctions and allocate reserved inventory. This has been called Demand or Supply Path Optimization.
Publisher adoption of header bidding and server side integrations is available with most SSP’s including now Amazon, which means Google’s decision to do away with second price is a move to counteract the need for alternative strategies outside Ad Manager and DFP.
Google is the dominant force in Server Side integrations and operates on both buy and sell sides, so by owning the market and operating in it Google can artificially increase and decrease inventory value and availability to drive competition.
The move to first price will see an artificial jump in CPM’s until buyers rethink their strategies, which may include more bid shading (sending multiple, varying bids for the same inventory), but this is a dangerous tightrope to walk and could see IO’s go unspent.
This destabilization will bring a higher volatility in pricing which could have a negative impact on publisher revenues (in the short term), but once stabilized the most successful companies will be those that enrich their bidstream with audience data that allows for true optimization.
The aim for publishers is to let their most valuable commodity, their audience, set the value to the buyer based on multiple real-time factors allowing bidders to optimize based on specific brand objectives or campaign goals.
I think we’ll see a move from buyers competing on price to a far more transparent ecosystem where buyers will buy impressions based on real-time user value.
Grieg Dowling, Managing Director, Dowling, Best and Smith Ltd
Dowling, Best and Smith LTD work with publishers to develop editorial distribution and revenue strategies that enable the sustainable production of quality content in an increasingly digital and platform dominated media environment.
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