Auction dynamics are a core component of the programmatic ecosystem and with the industry moving towards first-price auctions, we decided to hold a Programmatic FYI on May 28th. Our fantastic speakers from PubMatic, Google, SpotX, IPONWEB, AppNexus, A Xandr Company, Verizon Media, dataxu, and Dentsu Aegis Network took our audience through an overview of auction dynamics for dummies, a panel on who stands to gain, and a closing session on how to move forward. Read our key takeaways below:

Buyers and Sellers Need to Rethink Their Strategy

  • A change in auction dynamics is a change to the ‘rules of the game’ – meaning that the buying strategy used by buyers and sellers alike will have to be adjusted to fit new auction dynamics.
  • First-price auctions mean that the winning price is set at the highest bid in the auction. Second-price auctions mean that the winning price is a fraction above the second-highest bid in the auction.
  • Buyers have to reevaluate their bidding strategy as SSPs move towards first-price auctions, as their bid will be the exact amount they end up paying if they win.
  • Headerbidding allows a publisher to engage multiple SSPs to hold a second auction between SSPs, in order to get higher CPMs.

Bid Shading is Becoming Essential

  • Bid shading isn’t a part of auction dynamics, but is an important tool to help buyers determine the right bid price, and for sellers to set the right ‘floor price’ (minimum bid price). With auction dynamics changing it will become even more essential, if not necessary.
  • Both SSPs and DSPs use bidshading. For SSPs, they have the advantage of having concrete data on the price at which sales occur at, whereas DSP algorithms have to guess at these figures.
  • Bid shading should be considered a core element of the service provided by DSPs. Auction dynamics are hugely complicated, and providing technology to navigate them is where DSPs show their value to buyers.

CPMs Will Rise, But Publishers Won’t be Crazy Rich

  • The short-term effect of moving to first-price auctions is a sudden rise in CPMs, but this effect is likely to be short-lived and CPMs will normalise once buy-side players adapt their strategies.
  • Over time, CPMs will likely still rise but at a manageable and normal rate. Publishers also need to be wary of overextending and raising floor prices too high, as this may in turn lead buyers to decide to simply opt-out of buying inventory from those publishers.
  • Overuse of bid shading also complicates auction dynamics, as buyers and sellers will all be guessing at different prices. More transparency into the bidding process could help solve this issue.
  • The industry needs to think like an ecosystem again if it wants to arrive at CPMs that fairly reflect the value of inventory, and to encourage investment from outside the ecosystem to come in.