“Google’s Adx makes up ~50-60% of all programmatic inventory so this shift will have a major impact across the board. This should level the playing field with Google giving up its ‘last look’ advantage it has long held via its publisher ad server, Google Ads Manager, that gave Google the option to bid after seeing all other competing bids from other exchanges.”
Why Transition To A First Price Auction?
Long ago most publishers used a single auction to sell programmatic ad inventory.
Over time, however, ads eventually began being facilitated through multiple auctions as the programmatic marketplace grew more sophisticated which can complicate the bidding and selection process for programmatic inventory.
According to Google’s announcement:
This complexity has made it difficult for advertisers and agencies to properly value programmatic inventory and it has driven our publishers and app developers to implement increasingly complicated ad monetization strategies, reducing transparency across the industry. Further, the increasing intricacy of programmatic has made it operationally very difficult, even for experts, to determine what’s going well and what needs to be improved.
To make things more simple for advertisers, Google is now transitioning all of its display and video inventory back to a single, “unified” first price auction.
“The other major exchanges, Rubicon and IndexExchange, have already made this shift to first price auction,” says Litwer.
What Does It Mean For Advertisers?
After the change goes into effect later this year, all programmatic buyers will use the same auction when bidding on inventory, which will also include “inventory directly negotiated with advertisers.”
“Advertisers will need more technical and data science chops to be able to crunch data to inform their bids either through manual bid strategies or algorithmic bidding. Expect CPMs to continue to increase.”
How To Prepare For The Change
The change in auction dynamics means that advertisers will want to revise their programmatic strategies accordingly. Google said that they plan to give advertisers ample time to prepare “over the next few months” to re-evaluate their use of price floors and bidding rules for Google Ad Manager inventory.
“Advertisers more than ever need to ensure that whoever is buying their media is well educated on auction dynamics and has the capability to navigate through these types of changes,” says Litwer.
“As the percentage of media investment via programmatic pipes continues to increase (~80%), this will only continue to be more important.”
*Note: Google reports that change will have no impact on auctions for ads on Google Search, AdSense for Search, YouTube, and other Google properties.