I’m old enough to remember technologies like Sony’s BetaMax and how it was replaced by JVC’s VHS. BetaMax was arguably a better format but JVC won the battle and consumers were all forced to go out and buy new players to watch movies.
This was a decision that was not made by consumers and not made based on which technology was best. Instead, it was a decision that was lead by powerful companies and we (the consumers) were the collateral damage as these tech titans fought out this tremendous battle.
The same goes for battles like Lotus’ 123 spreadsheet program that lost to Microsoft Excel. Or, how the AltaVista Search Engine was replaced by the all-knowing Google. The list of these technical revolutions goes on-and-on but each time it happens it disrupts the entire ecosystem. This same disruption is about to happen as the programmatic auction dynamics possibly shift from 2nd to 1st price auctions.
Next week’s Programmatic Forum features a debate on 1st and 2nd priced auctions. The debate takes place next Tuesday 24th July, at 8.30am – 10 am at Dolton House, Hyde Park, and will feature speakers such as Sarah Melrose the programmatic director at Ikon Communications, and Zainab Khosrowtaj Performance Media Director at Bohemia Group, along with executives from Microsoft and Nine.
As a quick background, programmatic auctions have existed since MediaMath purportedly conducted the inaugural programmatic auction in 2008. Ever since that date the auction dynamics have been based on 2nd price.
In a nutshell this means that if there are multiple buyers of inventory then the winning bidder pays 1 cent (USD) more than the second highest price. This “2nd price” auction dynamic was lifted directly from the PPC world where Google was already successfully running a 2nd price model.
Interestingly enough I looked at Bid-Density in Australia and found for every one SSP auction there are 16 DSPs bidding on that same request. Conversely, in the US there are over 60 bids for each auction. This means that the bids in Australia are more ‘spread out’ than the bids in other developed markets. This is an important factor when thinking of how this technology will be different in Australia than in other markets.
This model has existed and worked well for the industry and it has coincided with the rise of programmatic to become the dominant form of media buying that it is today. However, that is all about to change (maybe). We are on the cusp of moving auction dynamics to 1st price auctions. Just like the switch from Betamax to VHS, this will affect you! Are you ready to make the move?
There are definitely pros and cons of both 1st and 2nd price auctions. For instance, with 1st price auctions you know what you are paying and therefore the ‘transparency’ is technically higher. With 2nd price auctions you are technically paying a lower amount which therefore saves money for the advertiser. The list of pros and cons for each side is long and it’s exactly why the team at Ashton Media are hosting a programmatic debate.
In Summary: There are definite benefits of both 1st price model and also of the 2nd price model. Also, it’s normal and healthy for technology to change and evolve. However, these decisions to change our ecosystem shouldn’t happen in boardrooms behind closed doors. They should be discussed in open forums with the opportunity for everybody in the industry to have their say.
I’m looking forward to seeing you at the Ashton Media Programmatic Forum to hear which side wins this debate. Would you vote for 1st or 2nd price auctions?