Advertising through Google is essential to today’s marketing landscape, so get ready for a huge industry shift to first-price auction bidding.
So, what is first-price auction, and how is it different from second-price auction? The answer is simple: payout. The second-price auction is the system Google has been using. This way, the bidder only pays a small increment above the second highest bid. For example, if Bid “A” is $75 K and Bid “B” is $20 K, then the winner behind Bid “A” pays something along the lines of $20,001. Under the new system, first-price auction, the winner behind Bid “A” would pay the $75 K offered.
The first-price system also eliminates “last look.”A program that gave advertisers more access to Google’s offerings. It allowed for a Google ads agency to add a penny and outbid the winner, raising Google’s AdWords and DSP win rates while opening up exclusive offers for the buyer.
Second-price auctions have been the name of the game at every Google ads agency for years, so most demand-side platforms are built around it. Many advertisers will be at a disadvantage of negotiating in this new system. More than that, with a service as prominent as Google leading the charge, many PPC, or pay-per-click, providers will be making this same change.
Buyers won’t be the only ones floored by this change. Publishers will be at a disadvantage as well. They will need to restructure their price flooring strategies in order to keep sales within a profitable range. Changes like this call for adjustments throughout the industry.
How it will change
The rollout will be incremental, starting at a small percentage of the traffic and expanding with Google ads updates until first price auctions are all that Google deals in. The switch should cover the entire Google Ad Manager system by the end of the year. It will be a swift change and every digital media buying agency will need to pivot quickly to avoid wasting client funds.
Since Google is an industry leader, this change could kick-off a widespread shift across platforms. Each TV advertising agency, digital media buyer, and traditional media strategist will need to learn how to effectively manage first-price auctions. Any PPC management you seek out should be experienced in or exceedingly familiar with the processes that first-price auctions call for.
According to Sam Cox, the group product manager at Google Ad Manager, this change in selling styles will only be applied to services bought through the Ad Manager system. At least for now, the Google properties like AdSense for Search, Search itself, and YouTube won’t be changing.
The takeaway
Google is moving its Ad Manager property from a second-price auction to a first-price auction system. They are starting small, but by the end of the year, all placements bought through Google Ad Manager will be done through the first-price auction. This means you’ll need to find a Google ads agency with a deep understanding of the new system. Get in touch with media buyers that adapt and change quickly, or budget for some growing pains.
As an experienced Google ads agency, we understand the first-price auction system well. We are primed to pivot as quickly as process changes like these occur without missing a beat or wasting client money. Ready to take real action? Reach out today!
