The Effect of Google’s First Price Auctions on Publishers
https://digiday.com/uk/publishers-enjoy-short-term-cpm-spikes-up-to-50-in-first-few-days-of-googles-first-price-auction-rollout/
https://digiday.com/media/wtf-bid-shading/
Much news was made about Google’s switch to using first-price auctions, and recently that switch was made. In the short term, it has been beneficial to many publishers, who have seen a boost in CPM. CPM, the cost per thousand impressions, determines how much money advertisers have to pay per impression on an advertisement. While advertisers may have reason to decry such changes due to increased prices, publishers are undoubtedly enjoying CPM spikes ranging from 9% to 50%. The reason for the increase in what advertisers pay is that advertisers are now placing higher bids to ensure that they secure desired advertisement spots. In the past, they could comfortably secure such spots by placing high bids and knowing that they’d simply have to pay the second highest bid. In first price auctions, advertisers have had to entirely augment their approaches.
Many of these initial CPM spikes were temporary, and have normalized in the time between the rollout of first price auctions and the article’s publication. This is in part because of bid shading. Bid shading works as such: a buyer in an auction will pay some amount between their own bid and the second highest bid. One can see how this is beneficial to advertisers: instead of fully having to pay their own bid and potentially overpaying, bid shading offers them a compromise. While it is more often a tool used by buyers, publishers still tend to be paid more than they would in a pure second price auction scenario. This tactic, coupled with advertisers preparing for Google’s changes, has allowed some advertisers to avoid having to pay more than before. However, even as advertisers have had more time to adapt, in the long-term a marginal increase of CPM’s is still expected. A bidders strategy in such a situation is hazy, as their bid has some control over their price, but, depending on the extend of bid shading, it may be negligible.
In class we have learned that first price auctions for selling advertisements are inherently unstable. Notably, the article mentions that while the general trend for CPM was a rise, other metrics such as volume of impressions have increased by 10% for some publishers yet fallen for others. In addition, CPM’s have not risen uniformly for all publishers. In fact, many publishers are attempting to adjust and reevaluate their practices after not witnessing the CPM spikes that other publishers are enjoying. While many publishers have witnessed short term benefits under Google’s new system, it is yet to be determined who will benefit the most from these changes in the long term.