Google unified first price auction explained

Since September 10th, Google has been progressively rolling out its new unified first-price auction model.

Google unified first price auction explained

1 - What are the key takeaways you should have in mind?

  • Google is dropping its last look approach. The Header bidding winner price (or a higher direct line item CPM calculated by their Dynamic allocation algorithm) will no longer be sent as a floor to the other demand partners (through AdX and EB). 
  • Google will now run a “unified first price auction” where all the sources of demand will bid at first price and will share a common floor price, called “Unified Pricing Rules” (UPR).

But let’s go deeper into this new approach to better understand what is going to change, the potential impacts and how Smart is considering this move and our recommendation for publishers. And finally what is a true unified first price auction we are aiming for?

2 - What will change?

Here is a simplified view of what the competition was before and after the switch to the unified first price auction mechanism.

Google first price

Google is moving away from the “last-look” approach where they used to set the Header bidding winner price (or a higher direct line item CPM calculated by their Dynamic allocation algorithm) as a floor in a second-price auction with their demand partners (through AdX and EB). 

Google is now run a unified first price auction where all the sources of demand will bid at first price and will share a common floor price, called “Unified Pricing Rules” (UPR).

This comes with some other changes:

  • Open Auction floors (ie floors that only apply to AdX OA) won’t be available anymore.
  • Publishers will only be able to set UPR with a limit of 200 (vs 5,000 OA rules before).
  • UPR will be applied everywhere (including on header bidding winner as a post-call rule).
  • HB winner price won’t be used as a floor to AdX competition anymore.
  • AdX competition will be at first price. 
  • HB, AdX, EB, Direct will all compete on price: The higher will win (if above the UPR).
  • One exception to unified first-price auction: Programmatic Direct (Programmatic Guaranteed, Preferred deals and guaranteed packages) won’t be part of the first price competition (meaning they can deliver even when at a lower price).
  • As before, Publishers won’t have API access to set their floors and will have to do this manually.

3 - What are the potential impacts for publishers:

For Publishers, in the short term, this could lead to a slight increase in revenue, due to the transition to the first price. However, two key aspects may jeopardize their activity: 

  • Limitation to 200 UPR will introduce an unfair competition between Supply and Demand: DSPs will be able to apply bid shading strategies, which allows them, due to yield algorithm, to reduce their bid price to the minimum to ensure they win (think of this as a way to pay like in a second price auction). This means no control for Publishers to be able to increase the floor or apply a refined flooring strategy to protect their business.
  • As a reminder, what is bid shading? Following this move from 2nd to 1st price auctions, DSPs have begun a practice called bid shading to get the lowest winning bid price.

– With bid shading, DSPs reduce their bid as much as possible to maximize their margin without impacting their win rate. To prevent them from engaging in this new practice and a CPM that’s too low, advertisers have started to set floor rates.

– This feature is now available in many DSPs and will become more popular due to the move from 2nd price to 1st price auctions.

– How does it work? The DSP will analyze all the historical information logged on bids. It will then calculate the bid so that it sits between what the first and second bids would be.

– These bid shading algorithms also take site, ad size, exchange, and competitive dynamics into consideration when determining where to set the bid. If win rates decrease, they’ll raise the price they pay.

4 - What are the potential impacts for SSPs?

  • For SSPs connected in HB: 

– In the short-term, they can expect an increase in revenue. As HB winner price won’t be used as the floor in OA, Google AdX’s demand partners won’t have the opportunity to overbid, as they lose their “last look” advantage.

– Longer-term, this increase in revenue will probably decrease, as Google AdX’s demand will adapt to the first price and increase their price to win the impression. Also, depending on the Publisher’s UPR strategy, HB might be negatively impacted, especially if the publisher set a UPR higher than HB floor.

  • For SSPs connected via EB:

– They can expect an increase in revenue as they compete at the same level as Google AdX’s demand and share the same floor price. And AdX has no longer its last look advantage.

  • The long-term, unified first-price auction will favor demand buying through Google:

– Demand going through AdX or EB will be the only demand source to have the full visibility on competition pricing pre-call (UPR) as well as additional information post-auction to help inform their bidding strategies. The UPR rules will apply post-call for HB demand sources. Furthermore, HB demand sources won’t receive any information about who was the winner and at which price. This way they won’t be able to adapt their bid strategy really deeply. 

– Due to Programmatic Direct (especially Guaranteed packages, an offer running exclusively between Google DV360 and GAM), buyers using Google DV360 will be able to bypass unified first price auction constraints and bid at a lower price than in first price competition.

– For DSPs: this approach will probably favour the biggest DSPs able to apply efficient bid shading strategy at scale. 

In a nutshell, this new unified first price auction mechanism is not as transparent and 100% fair as Google claims. If you deep dive into all these details, you notice that there are lots of bias in this so-called unified auction.

5 - What is Smart’s position on Google’s “unified first price auction”:

Smart has always been a 100% independent platform striving to establish a 100% fair competition between all its demand sources: and also to  be 100% independents Supply and Demand:

  • Smart’s Holistic+ empowers publishers to get their fair share by enabling a truly unified first price auction with competition between all sources of Demand (HB, Direct, RTB+, PG, etc.)
  • Publishers have the control to choose to apply competition in first price or second price.
  • Due to Holistic+, Header Bidding Partners are able to compete on real price against Smart demand, without requiring to create multiple line items.
  • Publishers have full control over the flooring strategy, with no limitation over the number of floor to apply.
  • Smart provides a built-in floor price optimization algorithm (Yield+) able to maximize competition and increase buyers paid price.
  • Publishers act with certainty as they have access to log-level data (including bid landscape) and full API access to implement their own floor optimization algorithms.

Key recommendations for standalone Publishers (Smart in HB, GAM as ad server):

  • In the short term, publishers should use the same floor in HB as UPR (to avoid HB winner to be dropped by UPR, As UPR is applied post-call for HB demand sources)
  • Some publishers apply a positive bid adjustment to HB winner to overcome Google tech tax and force Google’s Demand to raise their price
  • Provide information, feedback and/or data on the impact of unified first price auctions for their business, and especially for Smart. (nb of UPR floors setted…)

6 - Our take on unified first-price auction in a nutshell:

It appears like an initiative of Google to rebalance control in their favor and prevent 3rd party SSPs from operating outside of Google’s control. The impact on publisher revenue is still unclear but it will obviously strongly reduce their control on their advertising monetization strategy.

The first clear impact is that it will create an unfair competition/relationship between Supply & Demand as the 200 floor price limitations associated with the first-price auction – and no API access to set floor dynamically – will leave the door open to bid shading on the demand side without any control or protection on the Publisher side.

For more information about Smart do not hesitate to contact us

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