“The Sell Sider” is a column written by the sell side of the digital media community.
Today’s column is written by Rachel Parkin, senior vice president of strategy and sales at CafeMedia.
There has been a lot of noise about the upcoming updates to Google’s auction dynamics, including the practical details of what’s changing and the reactions of publishers. While simplification for publishers is the stated goal, this reset of the programmatic landscape also has several implications for advertisers to consider.
Revisiting the bidding strategy in a first-price world is an obvious need, but there are also indirect impacts on assessing the best inventory pathway, laddering up to the role of the demand-side platform (DSP). Let’s consider each of the major changes and what advertisers need to know.
Unified price floors
With unified price floors, Google brings the management of how publishers set price floors across supply exchanges under one roof. Rather than set a floor (and possibly a different one) for each individual exchange, there will now be a single floor for all exchanges.
This move will also streamline supply-path optimization (SPO) for buyers. The possibility of different floors within a publisher (accidental or not) meant that a key factor in determining the optimal path was looking for the inadvertent back door to lower cost inventory.
Removing that from the equation means advertisers will need to reevaluate SPO decisions, with a renewed focus on the inventory access and performance that make a path the most effective.
One of the longstanding inequities or inefficiencies in the Google auction flow is that header bidding, Google’s own AdX exchange and Exchange Bidding operate as a waterfall.
In a second-price world, this gave AdX and, subsequently, Exchange Bidding, an effective last look and the opportunity to clear at just one cent above the highest header bidding (or direct) line item.
Now that waterfall is collapsing and all programmatic, price-priority bidders will compete in the same auction. On its own, the change would give header bidders higher win rates, and buyers may see increased scale from non-Google exchanges.
The leadoff switch to all of this is the change from a second-price auction to a first-price auction. As the last holdout, Google is standardizing the playing field for all programmatic partners. Just like when header bidders switched to first price, advertisers must protect themselves from overpaying in the short term – and may need to lean on bid shading tools to help determine the optimal price, if they haven’t embraced those tools yet.
To the extent that a second-priced last look meant some impressions cleared below market value based on a unified valuation, it’s possible that AdX CPMs could increase and this change would boost the win rate through Google supply sources, counterbalancing the impact of a unified auction for header bidder win rates.
Enhanced bid transparency data
Wrapped up in the major updates are two side products for enhanced bid data and transparency. The first is that auction participation will require full transparency of both advertisers and publishers, which will help reduce fraud.
The second is that Google will start passing more bid information to DSPs participating in the AdX or Exchange Bidding auctions (but not header bidding), including the minimum price to win. This theoretically enables DSPs to be more strategic with placing bids.
As an example, a DSP could submit a bid lower than the highest value for pacing reasons if it knows that value will win (and there will be plenty of opportunities for the higher value advertiser to subsequently win). If Google is the only DSP to act on this data in real time, it will increase inventory access and win rates through DV360.
Regardless of whether DSPs can act on this information, it could be valuable for reporting on why a bid didn’t win and how to bid differently next time.
Impact on the ecosystem
By establishing uniformity in the supply side, the upcoming changes will shift the pressure and spotlight onto the role of DSPs within the ecosystem. More and more advertisers will leverage bid shading algorithms. Today, many of these are black boxes. Advertisers will need to give these tools the same scrutiny the supply-side platforms (SSPs) have faced for the past few years to avoid this simply transferring the tech tax and gaming from one side of the ecosystem to the other.
Taking price out of the equation will also enable buyers to more clearly see and interpret bid data. Differences in access and win rates can now more easily be attributed to other factors, such as user match rates and the strength of the connection between DSPs and SSPs, which is captured in whether the DSP sees 100% of available inventory and the percent of bids that get lost in transit. Analyzing data from the buy side of the supply chain will compel DSPs to ensure that they are operating as efficiently as possible and give advertisers new perspective on how well their DSP is working for them too.
While it looks like many changes are in motion, the outcome of equalizing auction dynamics and access across the supply side is a positive shift that will enable the industry to focus attention on realizing the same transparency in all aspects of ecosystem.