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The murky dynamics of auction mechanics


Victoria Usher

Published On:

February 15, 2018

Published In:

Advertising & Marketing | Technology Insights

The industry is united in its call for greater transparency in programmatic advertising, and nowhere is this more pressing than in the case of auction mechanics.

Put simply, auction mechanics describe the process of buying and selling online inventory. There are two predominant models: second-price, where the winning bidder pays only a small fraction above the second highest bid, or first-price, where the highest bidder pays exactly what they offered.

The easiest way to understand this is to think of eBay – a prime example of what a second-price auction looks like.

The arrival – and rapid uptake – of header bidding has benefited the industry in many ways, from fairer pricing for publishers to increased inventory transparency for marketers. But while programmatic is quick to evolve, it’s also slow to adapt to the flaws in each evolution.

By muddling the bidding landscape, header bidding has threatened traditional auction mechanics – creating a ripe environment for exploitation by unscrupulous providers.

Here’s how the story goes

Historically, publishers would select one Supply Side Platform (SSP) to work with – a decision made after much consideration and research into its standards on quality, service, and transparency. They may have a few SSPs on their roster, but due to latency issues, it wasn’t possible to offer an impression to multiple SSPs simultaneously.

Step in header bidding. By enabling publishers to work with several SSPs at the same time, these platforms had to compete aggressively to secure the highest price for each impression. This competitive environment – combined with a ‘convenient’ lack of transparency – led some SSPs to adopt unsavoury processes in a desperate bid for revenue.

One such example is the practice of “shadow first-price auctions” – where a SSP will disguise a first-price auction as a second-price. It will secretly switch from second to first-price auction, without informing the demand-side platform (DSP), resulting in a buyer paying over the odds for inventory, with no added benefit at all.

If buyers have no real visibility into the auction type, they will keep losing money, and may even walk away from programmatic altogether. As well as costing marketers big bucks, it’s fuelling suspicion and distrust, creating an unhealthy environment. It’s clear it cannot continue. But what’s the solution, when unscrupulous SSPs stand to gain by continuing these practices?

The future

The discovery of these murky mechanics has shocked buyers, publishers, and quality providers alike. The industry is now moving towards a solution: fully transparent first and second-price options. Fortunately, there are many providers who now offer these solutions.

By doing your homework and choosing only the most transparent providers, industry players can stay above the fray.

 By Eleanor Matthews, Account Manager

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