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Revealing advertising auction types

This article describes how supply-side platforms (SSPs), such as AppNexus, OpenX, and the Rubicon Project, are just now starting to tell buyers what types of auctions they will be bidding in when purchasing advertising space on the web. SSPs are software that manages the selling of advertising through an automated fashion. According to the article, this is a great move for the SSP companies, as they are increasing the transparency of their auction software and helping their users, the ad buyers, learn more about their own bidding habits. Previously, the mechanics of advertising auctioning was largely a mystery, and it was very difficult for ad buyers to understand their payment practices. For example, some platforms would charge hidden fees or set unanticipated price floors for their clients to maximize their own profit, which led to a breakdown in the relationship between those clients and that software. The reason why this change in transparency is happening now instead of a few years ago is because advertising auctions were largely second-price auctions through server “waterfalls”, but as SSPs began to rise in popularity, header bidding came into place through automated trading, which is largely auctioned off through first-price auctions.

This relates to the auction theory we learned in class as well as the examples given about Google’s AdX platform. The new changes in transparency will greatly help ad buyers and SSP clients understand how they should bid for advertising space on the web, as their strategy will vary widely between different types of auctions. The two primary auctions seen in this space are second-price and first-price, and both of these have very different dominant strategies. The ambiguity in the programmatic auction space definitely causes issues – for example, if the auction was indeed first price but the ad buyer thought it was second price, the buyer could have bid a lower price and still won, saving some money. Now that buyers have the auction type in mind, they can make smarter decisions about their bidding behavior.

Programmatic is finally figuring out a basic flaw in ad auctions

 

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