Google Is Moving To First-Price, But Big Questions Remain

Google’s move to create unified, first-price auctions for publishers using Google Ad Manager doesn’t just change the auction type. It impacts pricing, header bidding, publisher floors and how publishers see AdWords demand.

Under the new rules, all exchanges will bid for an impression at the same time, and Google will lose the “last look” it reserved for itself to outbid its fellow exchanges via a second-price auction.

“How exactly this will impact the ecosystem is dependent on which constituent was benefitting most from this advantage – publishers with higher closing prices, buyers with better ROI or Google themselves,” said Rajeev Goel, CEO of PubMatic.

Buyers will need to use bid shading algorithms to bid effectively, and publishers must adjust floors and learn the nuances of the new auction mechanics.

Most of the sources AdExchanger spoke with – buyers, sellers and vendors – predicted that prices will rise temporarily, then stabilize or even fall in the long-term.

At least that’s what happened when the rest of the ecosystem standardized on first-price auctions before Google. While CPMs initially rose, they’ve dipped in recent quarters as buyers started aggressively bid shading – a fact confirmed by many publishers and borne out in Rubicon Project’s earnings. Eventually, CPMs likely stabilize and find an equilibrium as both sides adapt.

Besides pricing, many industry experts are asking questions about how Google’s change will impact header bidding and flooring strategies, Google’s AdWords business and publishers’ quest for transparency.

Will Google’s unified, first-price auction kill header bidding?

Header bidding unified publishers’ auctions, allowing them to wrest control from Google, which didn’t allow competing demand to vie for every impression. Now that Google will allow all buyers to compete in the same auction, what happens to header bidding?

Former AppNexus CEO Brian O’Kelley predicts Google could fully kill off header bidding competitors by dropping its fee on its own header bidding-like product, exchange bidding, if publishers bypass the AppNexus Prebid, Index Exchange or Amazon Transparent Ad Marketplace (TAM) wrapper. “This essentially routes all supply through Google in a unified auction,” O’Kelley said, “which is great for the publisher from a yield perspective and puts Amazon in a corner.”

Or the opposite might happen, and header bidding will thrive under the new unified auction. Once Google AdX and exchange bidding no longer know the “price to beat,” they aren’t so special anymore, said Chris Kane, founder of Jounce Media. “That could be really good news for Prebid and Amazon TAM.”

The idea of publishers abandoning header bidding because Google unifies auctions doesn’t seem likely, said Rubicon Project CTO Tom Kershaw. “It will not undermine header bidding,” he said. “There is nothing [Google] can do to stop that train.”

Added Kargo CEO Harry Kargman: “Why would a publisher give up the header if they get the best of both worlds?”

Will publishers need to invest more in managing auction floors?

Flooring strategies in first-price auctions differ from flooring strategies in second price auctions. When publishers set floors, they set a minimum price for their inventory in order to maintain its value.

In a first-price auction, buyers use a technique called bid shading to reduce the CPM as much as possible without compromising their win rate. Floor rates ensure that buyers don’t reduce their price too low. Chris Stark, co-founder of Freestar, which manages ad inventory for publishers, believes that publishers will need to hire in-house data scientists or data engineers to create sophisticated first-price flooring strategies.

“The cost of not doing so … will be hidden in declining revenue as the buy side gets better at bid shading,” Stark said.

One way publishers can still retain pricing control and manage yield is through their header bidding wrapper, said Meredith SVP of data and programmatic solutions Chip Schenck. The header bidding wrapper conducts the auction before Google Ad Manager, which gives publishers control they wouldn’t get by just using Google.

This added control is yet another reason why Google’s unified auction may not end header bidding. 

Will transparency be a problem?

Unifying auctions and removing last look creates a level playing field that publishers could previously only get through header bidding. But Google Ad Manager still holds back data and restricts how publishers can configure their ad setup.

“We strongly hope that Google carries the momentum of this transparency toward providing publishers with the full bid landscape data (not just the winning bid amount) as well as removing the ability for buyers / advertisers to opt out of disclosing who won the bid,” said Nicole Lesko, VP of digital ad product and ops at Meredith.

Not having this data makes it harder for Meredith to “understand what [buyers] are after and how we can help curate inventory for what they need,” she added.

Publishers, including News Corp. , want access to log-level data to understand how Google is buying on behalf of its search buy-side platform AdWords (now Google Ads). Currently, Google obfuscates that data, which is frustrating to publishers because it makes it harder for them to understand the value of users on their site.

“As publishers we are still missing a huge piece of the transparency puzzle from Google since they do not give us log level data for AdWords demand that runs on our sites,” said Stephanie Layser, VP of advertising technology at News Corp.

As it turns out, Google has listened to these publisher requests. When Google switches to first-price auctions, it will remove the option for buyers to hide their bid data from publishers, Google told AdExchanger. Those rules apply to its own AdWords buyers, too. So publishers will see the clearing price and the losing bids.

One more publisher gripe: Unlike other exchanges, Google charges for auction logs, said Freestar’s Stark.

“Any partner that wishes to be transparent with their auctions should be providing the option to receive auction logs as part of their core service,” he said.

For buyers, the improvements in transparency are more clear-cut.

“The transparency of a first-price auction will be a welcome trade-off for any short-term price increases that we see,” said Varick CEO Paul Dolan.

Has Google actually stopped using a second-price auction?

AdWords buys a huge amount of publisher inventory. But those publishers know little about how the AdWords buyer operates and often suspect it picks up inventory for a discount. That’s because it works on an ad network model, with Google taking an undisclosed margin when advertisers pay for clicks that don’t come from search ads.

In the new setup, AdWords will submit a bid to Google Ad Manager, where it will compete in a first-price auction with no last look advantage. But when it buys on Google’s publisher product AdSense, it will use a second-price auction.

Because AdSense remains second price, some publishers using Google Ad Manager wonder if some of their inventory will be scooped up via a second-price auction. In some cases, big publishers on Google Ad Manager also use AdSense, which is keeping the second-price format. If that’s the case, AdWords could win by bidding just a penny more than the highest first-price bid.

Google Ad Manager’s unified pricing product, now in beta, includes an exception in which floor prices won’t apply to AdSense backfill, so AdSense second-price auctions can sometimes run within Google Ad Manager’s first-price auction environment. That exception led Meredith SVP of data and programmatic solutions Chip Schenck wonder, “Is this still effectively giving a Google demand source the last look?”

This post was syndicated from Ad Exchanger.