How Google is Rewriting The Rules of Ad Auctions

Publishers evaluate their ad tech ecosystems as the internet giant creates a ‘unified’ world

Google is moving to a simpler online advertising model called “unified auctions,” but its adoption will be anything but simple for the publishers who rely on the internet giant’s technology to manage their ad inventory.

In the coming months, Google is aiming to level the playing field for advertisers when it comes to bidding on ad inventory across sites that use Google Ad Manager, which is much of the internet. Google is transitioning to unified auctions with first-price winners and doing away with so-called last-look bids.

That’s a lot of jargon, but here’s what it means: In a unified market, bidders compete in a single auction, under one set of rules that apply to all comers, instead of multiple independent auctions run by publishers on a variety of exchanges, which then send winners to Google’s ad server for a final round.

In Google’s new unified auction, the winner will pay the amount bid, period. Previously, the auction winner would actually pay the amount bid by the second-highest bidder plus a penny, also known as the second-price.

“In display advertising, the variations in programmatic deal types and the rules associated with each one make auctions really complicated,” says Mike Smith, Hearst Magazines’ chief data officer. The changes could lead to a fairer advertising ecosystem that’s also more transparent.

Publishers appear to be the winners here, by potentially pulling in more money from each ad in the first-price system. Still, some ad tech experts say that there are hurdles on the path to reorienting toward unified auctions. “Sometimes things can break when doing such a technical migration,” says Tom Kershaw, chief technology officer at Rubicon Project, the ad exchange technology firm.

Challenges

The biggest change publishers face is that Google wants to cap at 100 the number of rules they can write that govern ad auctions. Rules control when certain advertisers get priority on select inventory, and they change depending on the location of the user, browser type, device type and other variables—for some publishers rules can number into the thousands.

“It will require a ton of work for a publisher to somehow develop a way to adhere to only 100 rules,” says Walter Knapp, CEO of Sovrn, an ad exchange.

Also, publishers will have to rethink their partnerships with ad tech providers who may not provide the same value they once did. Publishers have a variety of partnerships with ad exchanges outside of Google that were built for the old system. Such promiscuity gave rise to tactics like header bidding, a hack that allowed publishers to run parallel auctions through the other exchanges, effectively intensifying competition in the marketplace.

At the most basic level, Google’s move to unified auctions will speed up the bidding process. The time it takes to pick a winner, already measured in milliseconds, will be that much faster. The new marketplace will also affect private marketplace deals and exclusive, reserved ad inventory, arrangements in which select advertisers get preferred access to ad space. The preferred access won’t go away, but with inventory being sold in a unified auction, there will be more opportunity for outside bidders to swoop in.

The Fix

With change comes opportunity, says Smith. “It is a healthy exercise to revisit rules that have built up that are very often no longer necessary,” he says. For instance, there are rules publishers might have implemented that only made sense in a second-price auction, rules that took advantage of the inefficiency of advertisers bidding with the knowledge they would only pay a penny more than the second-place bid.

“Publishers may have hundreds of rules left over from legacy systems, but they may only be using 20 of them,” says Krushna Merchant, director of product at OpenX, an ad exchange.

Publishers may also want to re-evaluate who they partner with. “Instead of working with 11 header bidders, maybe you only need to work with three quality ones,” says Krushna. “This forces exchanges to really focus on what would add value to a publisher, what adds value to marketers and what makes sense for a unified vision of digital advertising.”

To understand the value of any particular ad tech partner, however, is going to take sophisticated analytics. Smith says Hearst uses a company called DataRobot to gather stats on the value of winning bids and which partners are winning the most bids to determine which exchanges are underperforming.

“To get a good read on that, you have to control a lot of other variables,” says Smith. “Which is hard because it’s a very dynamic system.”

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