There is a lot of talk right now in ad tech town on real-time auctions. And specifically, about the 2nd price versus 1st price model, and which is best.
Now if I haven’t lost you already, stay with me for just a minute.
Because I’m here to make the case that, however technical it might seem at first, this is a debate you really should follow. I’d even add that getting it right may be the single most important factor to our long-term future: whether the system we’ve spent the last several years building ends up a success, or an abject failure.
Imagine for a second the ad ecosystem as a house. You don’t necessarily know the ins and outs of how the heating works. But if it breaks in midwinter you’re certainly going to wish you did.
Whether you imagine auctions as the heating, the wiring, or even the overall structure of our building itself, we can agree their working well or not is going to have a serious knock-on effect for everyone that lives there.
Oh, and there’s no annex or second home in the country to run to should the whole thing start to crumble.
This is what’s at stake right now with auctions.
On Top of Headers
Now we’ve spoken in detail in the past about header bidding, and why it’s important for publishers to be on top of (pun intended). In a nutshell, what it promises is the holy grail of digital advertising – so called ‘holistic yield optimisation’.
And with the shift from ‘waterfall’ ad server setups to header bidding, we are effectively moving from a prioritised list to a real-time meta-auction. That’s a big change, and there’s a consensus that it also means a new world where 2nd price auctions result in both smaller returns for publishers, as well as buyers missing out on inventory. This can happen because winning 2nd price bids end up competing with each other in the final ‘internal auction’ that happens in the ad server. And hence the growing calls for 1st price auctions on both sides.
Leading on from this, in the header world, there are a couple more things to bear in mind:
Publishers can be working with more than one SSP or exchange. Hence, there is the risk of duplication for buyers. As well as a combination of 2nd and 1st price auctions. More inventory means greater running costs. And how can we be sure that extra technical cost translates to value, for both parties?
All in all, you’d be forgiven for concluding with all these new inventions, we’ve actually taken a step backwards. But wait – before you dismiss them outright, here are a few more facts to bear in mind:
Investment and new R&D is needed to ensure we can cut through new complexity, and the extra tech cost involved with header bidding. Step forward supply path optimisation – an example of which is nToggle, a company our partner Rubicon Project bought earlier this year.
Of course, we should treat any big change with caution, but the key point here is transparency. By which I mean clarity for buyers as to what type of auction they’re participating in. As well as the insight new tools like SPO can provide.
The Big Picture
Of course, as important as we think auctions are (and we hope after reading this you see why) equally, we shouldn’t get stuck in the detail. Bottom line, for digital advertising to mature in the way publishers need it to, trust and transparency are fundamental – something akin to the walls and roof of the house we live in.
Assuming we can do that – and keep our eyes on the long-term prize, what’s next?
With greater transparency, think fewer opportunities for short-term gains, at the expense of the rest of the market. So, more consolidation, fewer ‘point solutions’, and mergers between those businesses that don’t offer a complete service across all media types.
Ad Tech Grows Up?
In ad tech, just as we seem to be moving towards greater clarity, with developments like SPO promising to radically simplify the way header bidding works, it would be a massive shame if confusion and over-complexity around auctions pulled us back again.
If on the other hand we can finally see the (ad tech) wood from the trees, we can face head on what is both the next major challenge and opportunity rolled into one.
And what is that?
It’s about evolving from CPC and CPA to true measures of effectiveness. Whether that’s brand uplift, or another metric – we need to decide, and we need to start figuring out how digital measurement grows up.
That’s the long-term view. For now, let’s clarify what’s happening in real-time. And make that future a reality.