Google and Ad Auctions

Google is changing how it’s selling programmatic advertising by the end of the year. It’s moving from a second price auction into first price ad auctions, where people bid what they actually want to pay for advertising. It’s… wait. Did you understand any of that? If you did, skip this article. You probably already work in digital advertising and you’re likely already in a panic. Reach under your desk for your emergency stash of hard liquor. You deserve it.

If you didn’t understand it at all, read on.

US$95.4 billion. That’s how much Google made from ads in 2017. Yes, that’s above the GDP of some countries, and it’s long become Google’s main source of revenue. You’d have seen the ads, peppered through Google search and other parts of its “content network”. If you’ve dealt with agencies at all on a digital campaign, you might have given the agency some money to work some magic on the Google search engine that you might not entirely understand, only that it’s leading to more prank calls to your business. You’ve paid some money that you’re pretty sure is going somewhere. Basically, with the immediate changes up ahead, you’re likely soon going to have to pay more for the same. Then prices might stabilise, and miiiight fall during the long run, but we wouldn’t hold our breath, because that’s how life is and Google isn’t a charity.

What the heck is first or second price ad auctions?

Here is a helpful graphic from Google:

As Google puts it, they’re trying to simplify their bidding process. And they’re certainly not the first system to convert to a first price auction, just the largest — big enough to change how the industry works. Even if it just affects display and video inventory sold through Ad Manager. Auctions on Google Search, AdSense for Search, YouTube, and other Google properties, Google Ads and Display & Video 360 are so far not affected.

Wait, you might be saying. I still don’t get it. What is a unified ad auction? Basically, there are two models for programmatic ads: unified and waterfall. Waterfall = Google had dibs on bidding on inventory, followed by the next exchange, and so on. In a unified auction, everyone has access to the inventory at the same time. Having more people bidding at the same time on the same thing can drive up prices, which is the main fear, though 90% of publishers in US/Europe use unified auctions. Most publishers also use Google Ad Manager as their default ad server, so in theory, this system simplifies what currently exists — instead of bidding on an exchange, you can now bid directly into a publisher’s ad server.

Still don’t get it? Here’s the main change on the buyer’s side. Basically, things used to be like eBay. You could bid $100 on something you felt was $1, and if the next highest bid was $2, you’d win but just automatically pay $2.01. Now, if you bid $100, you pay $100.

If you have a strategy for planning or bidding on ads, this might not even affect you much. Or it might even help — it’s more simplified, a lot of publishers already adopted it. The general consensus is that ads will increase in cost in the short term but will likely stabilise again in the long term. Want to know more? Feel free to get in touch for a chat.

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