[SMK] Social Media Knowledge


Google, First Price Auctions & The New Ad Normal

Starting this week, the price paid by winning bidders in Ad Manager auctions will be calculated differently. Google Ad Manager is moving to a first price auction method.

Some fear this will cause a price hike for online ads.

Google signalled the change in March. They say that months of trials have proven that ‘first price auctions have a neutral to positive impact on a publisher’s total revenue’.

So, that’s publishers happy. But, what will it mean for advertisers?

Who's on first, What's on second

Google previously maintained that second-price auctions were the method that best reflected the value of publisher inventory.

In second price auctions, everyone secretly submits bids. Whoever bids the highest wins the auction. But, the winner only has to pay a price equal to the second highest bid.

It’s theoretically simple. But, as the online ad ecosystem evolved, things got tricky.

In practice, a single bid went through multiple auctions, sometimes with different rules, trying to buy its way to ad space. Some agents tried to game the system. Many users begged for better transparency.

In early 2019, Google announced it was looking at first-price auctions as a way to ‘reduce complexity and create a fair and transparent market for everyone.’

Examples, expenses & equivalence

First price auctions work similarly to second price ones, except that the winning bidder pays the amount they themselves actually bid.

Consider a hypothetical auction with only two bidders. Marketer A bids $6. Marketer B bids $7.
Under second price auction rules, Marketer B is the winner and they pay $6.
Under first price auction rules, Marketer B still wins, but they pay $7.

Regardless of the auction type, the same bidder wins. But, the amount paid for the win is calculated differently.

So, it might seem like first price auctions will result in advertisers paying more. But, that’s not necessarily so. Why? Advertisers will learn to bid differently.

This is supported by a math concept called the Revenue-Equivalence Theorem. It says that first and second price auctions should expect the same revenue, and each bidder can expect to make the same payment. If you’ve got a beautiful mind, wrap it around the wiki explanation.

We are yet to see if online ad practice stacks up to economic theory.

Advertisers must adapt

For years, marketers have grown accustomed to second price auctions. A switch may temporarily disadvantage them while they and the platforms they use adapt to a first-price mode of operation.

Back in March, Google Product Manager Sam Cox promised to give buyers and sellers a ‘few months’ to ‘make changes in their programmatic strategies’.

Well, the months have passed. The time has come. Are you ready?

Is this switch by Google going to hit your bottom line? Have you got a plan in place to make the best of it?

Copy Transmission is a Melbourne-based agency :: Better Brands. Loud & Clear.

Learn with SMK through Dec 2022

Start your SMK: Digital Excellence 30-day free trial today and unlock unlimited, on-demand access to hundreds of hours of digital masterclasses, training courses and hands-on tutorials.

Your risk-free trial offers the perfect opportunity to expand and upgrade your digital intellectual property.

Each month SMK releases 30 hours of new and updated social media and digital marketing educational course content, ensuring you never get left behind – be it on digital strategy, tactics or implementation.

Alongside this, SMK offers live help and support weekly within the SMK Working Group. It might be a quick fix or the root of a bigger problem; either way, a problem shared is a problem halved. On a day-to-day basis, SMK’s team gives you hands-on support and fresh ideas.

Not to mention a shoulder to cry on, occasionally

Dec SMK Courses, Live Help & Support Options

Live Member Clinics every Monday & Tuesday from 1 pm – 2 pm AEDT

  • Live help and support from SMK’s team of analysts.
  • Book in to request a personalised discussion for 15 or 30m via Zoom within the Facebook Working Group.

Weekly Techical Labs: TikTok on Wednesdays from 1 pm – 2 pm AEDT

  • Technical Labs explore the technological process and workflows related to key digital marketing activities.

2022 Social Media Advertising Masterclass on Thursdays from 10 am – 12 pm AEDT

  • Module 1: Ad Landscape, Benchmarks & Strategy Planning
  • Module 2: Social Ad Reporting, Evaluation & Campaign Optimisation
  • Module 3: Advertising Strategy, Targeting & Campaign Planning
  • Module 4: Social Ad Creative, Copywriting & Campaign Testing

Unlocking TikTok & Snapchat Marketing Masterclass on Fridays from 11 am – 1 pm AEDT

  • Module 1: 2023 TikTok & Snapchat Marketing Opportunities & Challenges
  • Module 2: Strategic Thinking, Planning & Channel Set-up
  • Module 3: Engagement, Algorithms & Content Marketing
  • Module 4: TikTok & Snapchat Advertising Best Practices


Leave a Comment