With the advent of header bidding, traditional auction dynamics have been under tremendous scrutiny and are being reevaluated. Today, we’ll break down the various auction types and their use cases, along with the pros and cons of each.
Fixed vs. dynamic
First, publishers have the option to run a fixed or dynamic auction based on the type of campaign they’re running and their relationship with the buyer. Dynamic is typically the default choice and allows for fluctuation in price so buyers can bid and win at various price increments. Fixed is the more appropriate auction type if a publisher has already negotiated a price with a buyer. This means that the price is locked in.
In a second-price auction, the highest price wins, however, the winner only pays the next highest price. This means that the winner pays less than what they originally bid. Traditionally, real-time bidding utilizes a second-price auction. With the advent of header bidding, it’s pushed some SSPs to reevaluate.
In a first-price auction the buyer’s submitted bid price is the actual price it will pay for the impression opportunity. Support for first-price auctions is a new initiative for the video ad industry in attempt to make bids more competitive in header bidding scenarios where multiple auctions are taking place, meaning a subsequent and final auction conducted by the ad server. First-price auctions also offer an additional level of transparency that is attractive to buyers. First-price auctions introduce the concept of “you pay what you bid” and hold the seller accountable for charging the agreed upon price. While this all sounds great, this is still very new, and it will take time for DSPs and buyers adjust their bidding algorithms. In the meantime, the inconsistency in auction type can complicate things.
It will be interesting to see how the introduction of this new auction type unfolds. SpotX is currently experimenting with first-price auctions and passing the price floor to buyers. Inherently, by running a first price auction, we give buyers the best chance of winning the final ad server auction, increasing win rate. Additionally, SpotX gives buyers ultimate transparency by passing the auction type along with the price floor for all first-price opportunities. These two pieces of information empower buyers to make the best bidding decision. We will continue to follow the progress of this new auction type and report on any trends. Stay tuned!
This article was written by Lexie Pike, product marketing manager at SpotX.