Hulu switches to first-price auction bidding for its advertisement services
https://adexchanger.com/digital-tv/hulu-moves-to-first-price-auctions-for-its-ott-inventory/
Hulu is an online video streaming service akin to Netflix. Hulu has for a while had a different business model than its main rival, Netflix. The main reason for Netflix’s rise was its ability to stream movies and TV shows without any commercial interruption for a subscription cost. This business model has been extremely successful and is currently being replicated by the likes of Disney and Amazon. Hulu’s video streaming service is older than both Netflix and Amazon but not as successful. As such they are adapting to the modern world. Videos will be able to stream for free but will have an advertised interruption. They are still going to be competing with the streaming services but will have a hybrid business model which is in part similar to the advertisement services offered by Google’s video service, YouTube and similar to Netflix with a subscription service for its exclusive premium content. In order to sell advertisements on their market place, they will be using a first-price auction. The first-price auction is very commonly used by major websites like Google and Amazon.
Hulu’s management says that this move is more advertiser friendly and will “increase transparency” and reduce. The first price auction makes more sense for video streaming services since it reduces complicated rules and allows the customers to have more control over their advertisements. While the change on October 14th was likely a large undertaking for the software developers working at Hulu, the strategies behind bidding as also changed a lot. Previously they were using a second price auction which has a dominant strategy of bidding one’s true value. The new revenue of the winning bidder is their true value minus what they bid. This means the new dominant strategy is to bid below ones true value; one must ‘shade’ their bid.The common strategy in first price bidding is to bid (n-1)/n times your true value where n is the number of bidders. However for online bidding, n could be in the thousands essentially making it meaningless. Potential bidders that want to place ads on Hulu’s service must now bid very aggressively by bidding just underneath their true value if they want to win an auction and make revenue at all.