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How Do Google First-Price Auctions Work?
Earlier this month, Google announced the introduction of their unified first-price auction system for Google Ad Manager.
How Does The Google First-Price Auction Differ From Their Old System?
Previously, Google programmatic advertising inventory was purchased using a second-price system. Using the second-place auction, the highest-bidding advertiser paid one cent more than the second-place bid to secure the ad space. With the new Google first-place auction, the winning bidder will pay precisely what was bid to win the ad space.
Why Is Google Switching To A Single First-Price Auction?
In a blog post, Google states that this switch can “help reduce complexity and create a fair and transparent market for everyone” because the Google first-price ad auction platform allows multiple ad exchanges to have access to the same Google programmatic advertising inventory, giving brands the ability to bid at the same time and the opportunity to outbid one another. With a first price auction system, the playing field is effectively levelled and no one advertiser has first or last priority to bid.
How May A Single First-Price Auction System Impact Marketers?
The new Google first-price auction system is expected to drive up ad costs, as all advertisers will bid directly against each other and the winning bid will be the paid price.
But the bigger issue is the technology powering bids. As explained by Michael Connolly, CEO of ad tech platform Sonobi, “Demand side platforms have invested a lot of money in algorithms and machine learning to figure out bidding strategies that fit in a second place environment. To switch it to first-price will require some adjustment.” With a gradual roll out, Google is giving advertisers and technology platforms a few months to make adjustments to their strategies as needed.
Google noted that only programmatic display and video inventory sold through their Ad Manager will be affected by this update. Google Search, AdSense for Search, YouTube and other Google properties ads will not see changes.
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