The Second-Price Auction and Bidding Insights of Apple Search Ads
Offering nearly 2.2 million applications, the App Store is Apple’s only digital marketplace for iOS users to buy and download apps. The nature of this centralized platform creates a competitive environment for app developers. Like other companies, Apple offers favorable advertisement space, called Apple Search Ads, that allows these developers to attract downloads through promotions, and they create this ad system through a second-price auction. As we’ve explored in class, a second-price auction means that the winning advertiser does not pay their own bid but rather the second highest bid from their nearest competitor.
Apple prioritizes two main factors in determining ad rank: keyword relevancy and an advertiser’s maximum cost-per-tap bid (CPT). An effective combination of these two components determines the likelihood of a sponsored app showing up in search results. First, advertisers must choose keywords that are relevant to their app. Advertisers often create multiple ad groups that allow for numerous bidding strategies depending on their intended audiences. An example of specific audiences can be males aged 18-35 or photographers. These groups normally focus on different variations of common keywords or strategies that are meant to predict how customers might search for an app. As a result, it is extremely important that advertisers select the right groups and keywords that match their app’s appropriate audiences. After advertisers submit their keywords and ad groups, they can place and/or edit existing bids at either the specific keyword level or bulk ad group level. Their bid is the maximum CPT, the highest amount they’re willing to pay for a tap on their ad. An advertiser does not pay anything until their ad is clicked by users in the App Store, and because of the nature of a second-price auction, they often will never pay their maximum CPT.
Apple provides valuable metrics, called bidding insights, that allow advertisers to effectively track, strategize, and improve the performance of their advertising campaigns. With each keyword and ad group, Apple assesses the competitiveness of an advertiser’s max CPT bid and makes suggestions for new bidding values based on competitor bids and historical bidding data. Advertisers are also able to customize their max CPT bids based on the accuracy of a customer’s search in comparison to the exact keywords associated with an ad. More moderate bids should be placed on broadly matching keywords while more aggressive bids should be placed on exact matching keywords. Bidding insights also gives data on an existing ad’s tap-through rate (TTR). The TTR is the number of times an has been tapped divided by the total number of times the ad has been displayed to consumers. As discussed in class, the TTR is one of the most valuable statistics for an ad because it helps determine an ad’s overall payoff. Advertisers want to maximize their payoff, so a higher TTR is an indication of a more successful ad. The combination of bidding insights is valuable for advertisers to now monitor and control their monthly spending. Apple provides a budgeting feature that allows advertisers to specify their daily budget. They also provide data that suggests how advertisers should factor in changes in market dynamics, current events, and seasonality trends while adjusting their general advertisement campaign strategies.
Apple Search Ad’s creates a leading bidding experience that combines a second-price auction with informative statistics and suggestions for advertisers. According to Forbes, Apple dethroned Facebook in 2021 for the best mobile marketing ad network. With Facebook’s recent decline and the rise of other social media apps like TikTok and BeReal, it would be interesting to observe how the top performing mobile ad networks evolve over the next few years, and if any company can displace Apple from its number one spot.
Sources:
https://searchads.apple.com/best-practices/bidding
https://searchads.apple.com/help/ad-groups/0017-understand-and-create-ad-groups
https://searchads.com/blog/how-to-win-auction-apple-search-ads/