What to know about Google’s implementation of first-price ad auctions

The first-price movement
Most independent ad exchanges made the shift from second- to first-price auctions around a year ago. Google held out until March when it finally announced it would also make the shift to first-price auctions. Until that point, buyers, publishers and vendors had been straddled between the two auction types. In the interim, demand-side platforms came up with bid shading as a way to help buyers transition to first-price auctions where they have to be willing to pay what they bid, unlike in second price when they only pay a penny or cent over the runner-up bid (second price) in the auction.

This week Google confirmed a specific rollout date: Sept. 10. Plus, Google has said it will continue to test the effect of second-price auctions on around 3% of its inventory but that it has no plans to retain second-price auctions. Google is following other exchanges in moving to first-price, but its heft means bigger impact.

“Given AdX represents such a large pool of inventory, it’s not clear what the effect will be yet [once it has fully switched],” said Ari Lewine, co-founder and chief strategy officer at ad exchange TripleLift. “So Google wants to carve out some traffic [to run second-price auctions] to understand any future changes.”

Auction standardization and farewell ‘last-look’ advantage
From a transparency perspective, agencies and publishers have welcomed Google’s shift to first price and the removal of the last look advantage it had within Google Ad Manager on second-price auctions. Another benefit for buyers with Google finally going all-in on first-price auctions is that it will add a layer of standardization to bidding strategies. Once it has rolled out, Google will supply more information on details such as what the minimum bid price was that won an auction, after it has closed. They can then use that data to help inform future bidding strategies, rather than scrambling around in the dark or over-relying on bid shading — a technique which has drawn severe criticism from advertisers.

“It’s arguable whether benefits of shifting to first-price auctions outweigh the cons,” said Daniel Kim, programmatic trading director at iProspect UK.

In general, though, agencies welcome the change for more auction standardization.

“When industry changes [first-price auctions] like this are rolled out more concisely across everything — not just test patches — it helps people unify and figure out what normality is,” said Catherine Lofthouse, brand programmatic account director for Google at Essence.

Independent ad tech vendors will be watching like hawks for any fluctuations to their win rates in Exchange Bidding, according to Lewine. “They won’t go up; it’s a question of will they go down, and if so by how much,” he added. Currently, third parties that run first-price auctions and participate in Google’s Exchange Bidding (now known as Authorized Buyers and Open Bidders ) will pass their first price into EB, which then competes with AdX’s second price. That meant independent exchanges could often beat AdX to the bids — an advantage that will now be lost post-Sept. 10, when they will compete head-on against Google’s own first-price auctions.

Publishers promised more bid visibility
For publishers, getting better visibility of who is bidding on their inventory should be a good thing. Once the rollout is complete, Google will start providing data from all bids that publishers submit to their auctions. It will do so via Bid Data Transfer file, so that they can build a fuller picture of their bid landscape and see data such as the range of bids received, across specific ad units and also different buyers. The aim is to help publishers evaluate the value of their inventory and better understand bidding behaviors. They won’t be able to tie the bid data to individual users due to data protection laws like GDPR.

That should mean that publishers can understand better how the market is responding to its inventory, so they can, in theory, be more specific when valuing their inventory and influence their rates. It can also provide good lead-generation data — showing who has been bidding in the auction on their inventory. So publishers can get in contact with buyers who, for instance, haven’t won an impression, to see if there are other opportunities to work together.

“It could prevent buyers from over-valuing impressions and over-bidding on them, and get to a point where bids are better correlated to the value of impressions,” added Kim.

However, some publishers remain concerned that the full rollout won’t be beneficial to them. When Google first announced its plan to shift to first price, it also unveiled some unified pricing terms which were rejected by publishers because they restricted tools such as the ability to set infinite rules. In response, Google increased the number of rules from the 100 cap it initially proposed. But for some major publishers, this isn’t enough. “We’re not happy with the number of rules; they’ve just doubled them. That prevents us from doing anything smart with our pricing,” said a programmatic executive at a big publisher. “They’ve said they can give us more on request, but seemingly we have to show our reasons. Also, they are preventing API access.”

Pre-bid is a second-class citizen
For some exchanges, which have already moved to first-price, it’s the future of unified auctions in general, rather than Google’s move to first-price, that is an area to watch. Today pre-bid still sets floors for Google, so when Rubicon Project submits a dollar bid, Google takes that dollar bid and marks it up a dollar and one cent and sends it to everyone else to try and beat, according to Tim Kershaw, CTO of Rubicon Project.

“So pre-bid is very much a second-class citizen in the old auction-style, and I think Google is genuinely trying to create a fairer environment,” he said. “We’ve still a long way to go, and the next step is for pre-bid and DfP [DoubleClick for Publishers now known as Google Ad Manager] to come together and figure out what this looks like because neither of them is going away and having an adversarial relationship is going to help anyone.”