I have first hand experience with this. We at GREAT Guest Posts is a Google authorised RTB partner. We use our own DSP to respond to the RTB requests sent to us by google.
Internally we are holding a first price auction and we will select a list of winning bids to send back to google.
We will typically send back more than one bid if 2 or more advertisers want the same impression – even if they are not the same price. Google may reject one or more due to content restrictions, etc. In some cases we do not know what the restriction will be so we are not able to filter ahead of time.
Google then enters our bids into their own first price auction and selects a single winning bid from all the contenders.
At that point we have either won the auction or have lost. In either event we get feedback on the next ad request that gives us the result of the previous auction. The feedback includes what the winning price would have had to been for us to win as well as any indications of why it was rejected
We are then charged when the ad actually renders. If the ad does not render – we are not charged.
Internally each of our advertisers are running either a pre built or custom bidding algo and each are essentially siloed from one another. The feedback is used to drive the future auctions
We discount the advertiser’s bid to account for our fee before sending it to google. Google then does the same before paying the publisher.
It’s all pretty straight forward. Google moved away from the second price auction a few years ago all the vids we deal with are NET and first price.
We are also a publisher and sometimes I will bid on our own sites just to see what the actual publisher revshare is. Google seems to vary the revshare – that part of it is a black box.
First-Price Auction vs. Second-Price Auction
First price auctions can lead to systematic underbidding. Imagine you have two advertisers who value clicks at $1 and $0.75 respectively, but the benchmarks on your platform are $0.50 per click.
In a first price auction, either of the two advertisers will bid around $0.51 and pay that much. Regardless of whether one or both bids, the publisher has made $0.51. This model basically encourages advertisers to play mind games with their competitors and bid as low as possible.
In a second price auction, the advertisers will bid their actual value because there’s no risk of being overcharged. If only one of them bids then they still pay $0.51 to the publisher, but if they both bid then advertiser A wins and pays $0.76. The publisher just made $0.25 that they otherwise wouldn’t have. This system encourages advertisers to bid as high as possible since they know they won’t get charged anything more than their competition.
Imagine an auction for sneaker ads. A large company with a hefty budget might bid $100, a drop in their bucket, while a local shop might only offer $5. Under the second-price system, the winner paid only $5, matching the second-highest bid.
However, Google Ads now uses a first-price auction, where the winner pays their full bid, regardless of other bids. This means the $100 bid from the big company could win, even if others offer less.
While this can be challenging for smaller businesses, it also increases competition and potentially boosts ad revenue for publishers.
Why Does This Change Matter?
Shifting to first-price auctions in advertising platforms raises concerns for businesses with smaller budgets.
While the official stance might downplay the impact, the potential for price hikes is undeniable. Imagine a scenario where the highest bid of $100 for a sneaker ad determines the final cost, instead of the second-highest bid of $5 under the previous system. This shift could significantly inflate costs for everyone, particularly for smaller businesses lacking robust bidding strategies.
For those managing their own Google Ads without meticulous bid monitoring, the consequences could be dire.
Unchecked bids in a first-price environment could lead to skyrocketing ad charges, rapidly draining limited budgets. As AdSense itself acknowledges, “smaller advertisers may not be able to compete effectively.”
This change aligns with the evolving landscape of online platforms, similar to recent adjustments made by others in the space.
Get ready for a potential windfall! AdSense is set to unveil new initiatives later this year, aimed at empowering publishers to unlock higher revenue streams. We’ll share more details soon on how you can leverage these adjustments to your advantage.
Preparing for First-Price Auction
The big question looming for Google Ads users: how to navigate the first-price auction shift? While the full impact won’t hit until 2022, proactive businesses can start preparing now.
Scrutinise your bids. Sharpen your control by studying performance within Google Ads Manager. Dive into data to identify what’s driving results. This proactive approach lays the groundwork for a watertight bidding strategy.
Tailor your strategy to your goals. Whether conversions, clicks, or visibility are your north star, understanding your priorities is key to optimising ad spend in the new landscape.
Build Your Winning Bidding Strategy
GREAT Guest Posts PPC, our pay-per-click (PPC) solution, can help businesses of all sizes achieve their advertising goals.
We understand that crafting a winning bid strategy and managing Google Ads can be complex, especially for smaller businesses.
That’s where our expertise comes in. Our team of certified Google Ads marketers can guide you through the process, from bid strategy development to ad creation and optimization.
Let us help you conquer the competitive landscape and maximise your PPC campaigns.
Author: Jugnu Nagar
SEO Specialist