Google’s Latest Ad-Tech Changes and the Likely Future Impact

The programmatic market is in for substantial correction as Google rolls out unified auctions

google ad exchange algorithm
Google is changing how its ad auctions work.
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Last week, Google announced unified auctions are coming to Google Ad Manager, its sell-side offering, making this the latest move in what some deem as a major overhaul to the company’s suite of ad tech, aka the entity formerly known as DoubleClick.

Given the scale of Google’s influence, the move is likely to affect multiple tiers of the ad-tech ecosystem, with some even predicting that it could represent the beginning of the end for one of the most significant topics of debate in the sector for the last five years: header bidding. Additionally, it could also undermine the business model of ad exchanges. Adweek sourced opinion from industry experts on how some will have to prepare.

The historic origins of ad tech and auction dynamics 

Google claimed the measure is geared toward ushering in transparency in the often-ambiguous world of programmatic media trading. Others, however, see it differently, taking it as a major sign that second-price auctions in media trading are on the way out.

Will Doherty, evp global marketplace development at Index Exchange—one of the early advocates of the model—said Google’s move would make pricing transparency more uniform across the industry, thus furthering competition. “First-price auctions are truly the only way to make auctions transparent to buyers in a header bidding environment,” he added.

Second-price auctions—whereby the auction winner only has to pay marginally above the bid submitted by the second-highest bidder—were the default means for publishers to monetize remnant ad impressions in the early days of programmatic.

Typically, this was done using real-time bidding and involved multiple intermediaries, each taking their own cut of the ad spend, leading to the popularization of the term “the ad-tech tax” and some acrimony along the way.

However, the demand for greater transparency plus the rise of header bidding—a (relatively new) process that lets publishers conduct multiple, simultaneous auctions before taking the best offer—has prompted supply-side players including ad exchanges such as Rubicon Project, OpenX and Index Exchange to adopt first-price auctions.

Sam Cox, group product manager, Google Ad Manager, noted how programmatic media trading has evolved in a way that both sides of the industry have adopted increasingly complicated ad monetization strategies. Hence, Google’s planned rollout of first-price auctions means that buyers (theoretically) will have to pay exactly what they bid on the industry’s dominant ad-tech platform.

‘Lowball’ no more?  

Speaking with Adweek at the time of Google’s latest announcement, Lauren Fisher, principal analyst at eMarketer, described how parties on the buy-side of the industry would effectively game second-price auctions to increase their win rates (and commissions).

“[The first-price auction model means] you no longer can bet on throwing a high-ball offer out there and feel comfortable that you’re going to win the second price,” she said.

Additionally, Anthony Katsur, svp digital platforms at Nexstar Digital, added that first-price auctions will help reduce the risks posed by actors that operate purely to inflate the price of media for their own gain.

He added, “It mitigates whatever legacy predatory practices exist in the programmatic world …  you have people who are constantly lowball bidding just to listen [to an ad auction and work out how they can arbitrage media].”

By removing the price elasticity that second-price auctions introduced, arbitrage becomes a harder game to play.

Brands need to rethink their supply strategy 

Meanwhile, Brian Fitzpatrick, general manager of demand solutions at Iponweb, noted how the rise of first-price auctions was synonymous with the adoption of header bidding. “Now that they’ve finally made the decision to switch to first-price, all demand-side platforms buying through Google’s Ad Exchange [aka AdX] will need to rethink their bid strategies or risk significantly overpaying for media,” he said.

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