Who’s on 1st? The New Auction Debate

The only constant in our industry is one of change. Proving to be one of the most significant changes that we have seen within the programmatic space, is that of the introduction of 1st price auctions. It is a change that will, undoubtedly, be injected into more and more of your conversations over the next 12 months, and the implications are real. But first – let’s define!

2nd Price Auction (the Current Model):

RTB model whereby, if a buyer wins the auction, they will pay $0.01 above the second highest bid for the auction (per impression). This is programmatic as you know it, and is what DSP’s have been built upon thus, marketing models.

1st Price Auction (a proposed Model):

A Real Time Buying (RTB) model whereby, if a buyer wins the action, they end up paying the exact amount that they bid. 1st price auctions maximize revenue potential for the seller, providing a more transparent view on the exact value for each impression.

Why it Matters

On March 8th, IAB Canada’s community debated the pros and cons of the new: 1st price auction versus the 2nd price auction system, from a buy-side and sell-side perspective. What was unanimously agreed upon is the fact that we are discussing 1st price auctions in direct response to increasing marketplace demand for greater ‘transparency.’

In theory, the 1st price auction model allows for more transparency by promising to deliver more of a buyer’s revenue to the sellers, squeezing middleman margins. By understanding the true price around how inventory is being priced, you can determine ‘true value.’

However, this doesn’t come without challenges. The programmatic infrastructure has been developed with a 2nd price auction model in mind. This means that inventory needs to be assessed based on: content category, publisher, content itself, and relevancy of inventory against different marketers, in order to determine the value of an impression. This starts to become a complex matrix.

With 35% of IAB members (surveyed) believing that 1st party auctions will be beneficial to the industry, it looks like we have some testing to do.

Stay tuned for more – IAB Canada is in the process of developing an outline on: aspects to consider when buying against either auction, definitions you need to know, along with a Q&A. Should you be interested in learning more, please contact Laura Ferron.