Twitter and the Second-Price Auction
After analyzing types of auctions in class, I decided to research Twitter’s auction system for advertisers. Before discussing the auction system, it is noteworthy to understand that ads on Twitter are promoted by being posted directly into user’s Twitter feeds, and typically link to the company’s Twitter account. Advertisers choose a campaign objective for their ads, and only pay when “user take an action aligned with your campaign objective” (AdEspresso, 2015). In this case, the types of objectives are Tweet engagements, website clicks or conversions, app installs or app engagements, followers, and leads on Twitter. Organic engagements do not charge the advertisers. Twitter’s system is allows for high “click-through rates,” where users are more likely to click on ads compared to other social media sites, given how sporadically and effortlessly placed they are on a feed. Ads on Twitter are placed with a specific objective in mind. With this understanding of how ads on Twitter operate, we can delve into the auction system itself.
In lecture, we learned that the two ways of selling ads are by “charging for impression” or by “charging for clicks on ads,” the latter being a pay per click system. Further, we learned that there are four ways to price ads online, including first price, second price, generalized second-price (GSP), and Vickrey-Clarke-Groves (VCG) auctions. In this case, Twitter practices “the pay per click, second price auction system. In a second price auction, winners pay the price of the second highest bid. Specifically for Twitter, the winner pays “one penny above the second place advertiser’s quality-adjusted bid” (Twitter: Business, 2016).
According to Twitter’s business site, “you can bid what you truly believe a Tweet engagement or Account follow is worth to you without fear that you are overpaying.” Connecting the site back to the course, this is consistent with the dominant strategy in a second-price auction being to bid one’s true value. Deviating one’s bid to be higher than one’s actual value would make an individual pay higher than his/her true value upon win, while deviating one’s bid to be lower could make an individual lose and have a payoff of 0. In conclusion, Twitter’s system “maximize[s] the value” of an advertiser’s campaign by providing an “optimal amount of impressions” without the fear of overbidding.
Sites referenced:
https://business.twitter.com/en/help/troubleshooting/bidding-and-auctions-faqs.html
www.adespresso.com/academy/blog/twitter-ads-vs-facebook-ads-the-metrics-you-need-to-see/