Google Move to First Price Auction. Market Effects and Best Practices For Publishers.

(Part 3 of a 4 part series on Best Practices for First Price Auctions) – Go to Part 2 or Part 4
By the end of the 2019 Google will run a unique first-price auction at the GAM level. All ad-tech players are wondering what the effects of this move will be. So we decided to publish a blog series of four articles that will explore this Google move: market effects and some best practices for publishers.
In the first two articles, we went through the possible market effects of the Google move on buyers and publishers.
Instead, in this third article, we will address the best practices for Publishers concerning floor pricing in a first-price world:

• Why Publisher pricing still matters
• How Publishers should manage floor pricing right

Why Publisher Pricing Still Matters

Pricing Is Key – As It Has Always Been

What we can reasonably presume is that:

• Buyers will activate bid shading mechanisms on AdX
• AdX will increase its share of revenue for Publishers

When buyers activate and mature on bid shading mechanics, they will be in a strong position to reduce Publisher CPM:

• As measured by Adomik, the % of auctions where the buyer that makes the highest bid has no direct competition in the auction is relatively high
• This means that when bid shading algorithms kick in, they will start to explore lower bid value, find limited competition, and take advantage of the situation

Pricing Is As Challenging As Ever

While floor prices still matter, the move to 1st price makes the flooring strategy more complicated than ever before.
With 2nd Price Auction, Publishers could rely on bid data to inform their pricing strategy: one of the advantages of 2nd price auction is that buyers are supposed to bid their true value and give some information on their willingness to pay. Publishers in return could rely on those “true value” signals to understand the value of their impressions and audience and define their floor prices accordingly.
With 1st Price Auction, when bid shading is activated… bids do not tell the value of Publisher inventory anymore. If bid shading is done right, buyers should even be able to understand where floor prices are positioned and bid just above. The world is being reversed: bids are adapting to floor prices rather than floors are adapted to bids…
You can add to that the complexity of Publisher stacks, where floor pricing has to be considered across multiple platforms (usually AdX and Header Bidding) and remain consistent with other sales channels (Deals, Programmatic guaranteed, etc.).
Floor pricing will indeed become more needed but also more complicated.

How to manage floor pricing right for Publishers?

The move to 1st price will leave no choice to Publishers: they will have to be smarter about floor pricing than what they were in 2nd price or rely on the expertise and advice of a third party.
While bid data can definitely be used to inform the flooring strategy, Publishers will have to be extremely cautious due to bid shading. Yes, floor prices can be set up to protect the value of inventory and mitigate the risk of CPM decrease caused by bid shading… but how to know for sure what price a buyer is really ready to pay?
In my view, it is complicated to rely on the sole Publisher bid data to answer this question. Bids are not telling the whole story about the value of the inventory. Changing floors to analyze how buyers react is complicated and very risky as buyers might be faster or slower to react, might decide to increase their bids… but start to spend more on other “cheaper” publishers, etc..
I believe that part of the solution has already been implemented by first price marketplaces in other industries. What we need is not to look only at the data available from a one-to-one relationship between a publisher and a buyer, but instead to look at the market dynamics as a whole for given Publisher / Advertiser segments. I think that both publishers and buyers need a standardised and clear reference based on market data, that will list prices and that everybody can refer to when defining its buy/sales strategy.
A certain idea of transparency.
The part 4 of 4 is coming soon, stay tuned!

(Part 3 of a 4 part series on Best Practices for First Price Auctions) – Go to Part 2 or Part 4