Understanding Programmatic Auction Pricing Is a Major Priority for Marketers

As automated advertising has matured, the structure of programmatic auctions has become more confusing. In 2018, marketers are looking to break through the clutter to understand what’s going on under the hood.

Programmatic auctions have historically operated on a second-price basis. In second-price auctions, the second-highest price determines the amount of money the auction winner will pay. So if the highest bid is $10 and the second-highest bid is $5, the winner of a second-price auction will pay $5.01.

This style of pricing was easier to navigate before header bidding became popular and supply-side platforms (SSPs) started simultaneously bidding on the same piece of inventory. With so many vendors sending so many bids at the exact same time, publishers and advertisers alike became prone to gamesmanship. OpenX and an unnamed demand-side platform (DSP) teamed up and found that some SSPs were raising their price floors after bids came in, which allowed the SSPs to pocket extra money from advertisers and their DSPs.

Last year, to make pricing more transparent, several of the industry’s largest SSPs announced they would be shifting their auctions to first-price models, in which the highest bid determines what the winner pays. In a first-price auction, for example, if the highest bid is $10, the winner will pay $10. That sounds simple enough, but not all SSPs made this shift, so advertisers were left in the lurk trying to figure out if a given auction was first- or second-price.

“Advertisers and most agencies have no view into auction dynamics and the game theory applied,” said Charles Cantu, CEO of programmatic platform Huddled Masses.

Given the confusing state of programmatic auction pricing, it makes sense that marketers are looking to get a better handle on this. In a December 2017 survey by the World Federation of Advertisers (WFA) and dataxu, more than 60% of marketers worldwide said better understanding auction dynamics/pricing is a priority for 2018. And about a quarter of respondents identified it as a major priority.

The biggest obstacle marketers face in determining what type of programmatic bidding strategy to use is that there is a lot of conflicting information floating around the ad industry when it comes to what type of auction marketers are participating in, according to Cantu.

“There are so many so-called experts perpetuating misleading ideas to maintain higher margins,” he said.