Why Consider Switching to First Price Header Bidding Auctions?

Header Bidding
Last updated: August 13, 2020 | by Kean Graham
first price header bidding auction

This post was most recently updated on August 13th, 2020

With SSP’s (Supply Side Platforms) hidden fees and manipulative auctions, publishers, buyers, and ad tech companies are now starting to switch to first-price header bidding auctions. Except for Google Ad Exchange, all notable ad exchanges are busy with detailed experiments with first-price auctions.

How does a first price header bidding auction work?

First price header bidding auction is where the winning bidder pays the amount of their final bid. On the other hand, with the second-price auction, the winning bidder pays the amount of the highest unsuccessful bid.

For example let’s imagine collecting bids are $10, $6 and $3. With a second-price auction, a $6.01 bid will be sent over to the ad server. However, with regards to a first-price auction, the ad exchange would send the $10 bid which has the highest chance of succeeding against direct buys and Google Ad Exchange.

New to header bidding, you can learn more about it here.

The impact

By switching to a first-price header bidding auction, many see this as a way to make programmatic transactions more transparent to buyers and sellers. With this open first-price process, it will squeeze the margins of ad tech players and deliver more serving media to the publisher.

Keep in mind that the first-price auction switch comes at a cost. Some buyers have already started reducing bid prices. Buyers might lose out on inventory if they submit too low bid amounts and the auction will come out resulting in second-price logic.

It requires a high level of expertise and knowledge on the bidder’s behalf as they need to consider the worth of impression they will bid on and how much they have to bid to win at an acceptable price.

Conclusion

The need for second-price auction to promote true-value bidding will be significantly diminished as data becomes more transparent with the new server to server technology. With greater transparency, this will result in more informed decisions and accurate pricing from each bidder. Thus, this will result in a more fairer auction that will tell the real worth of every bidding transaction.

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