For years, the industry has accepted the second-price auction model as the gold standard for auctioning inventory. Under this model, the buyer with the highest bid wins the auction but only pays slightly higher than the second-highest price (thus the second-price name). This often encourages aggressive bidding, given the likelihood that they will pay a lower price. While buyers often benefited from this strategy, publishers were not able to maximize the value of their inventory and sell it for the price advertisers in the market actually valued their campaigns.
While desktop transitioned to first-price auctions a while ago, 2019 was the year when mobile in-app inventory moved to first-price with Google Ad Manager, Adcolony, and AppLovin leading the way.
Strategy is Everything
First-price auctions are not something mobile performance marketers should fear. If your partner has an effective bidding strategy you can maintain performance even with the new pricing structure.
If you are an advertiser, then your first step should be asking: “Is my DSP doing first-price correctly?”
As Aarki has transitioned to first-price, we have done extensive testing on first-price auction mechanics including testing them head-to-head with bid translation/bid shading strategies offered by our supply-side partners. Not only have we seen strong performance on first-price auctions overall (23.68% higher ROI for Aarki first-price bid optimization vs second-price auctions), but also confirmed that having a dedicated first-price strategy at Aarki outperforms bid translation provided by our partners.
While evaluating DSPs during this transition period and to help ensure you are getting the best out of your spend, ask your partners whether they are using their own models or relying on exchanges bid shading/bid translation. Also, ask about their plans to develop their own in-house first-price strategy.
By supporting both auction types, we are connecting demand and supply and adapt and optimize our bidder to help advertisers and publishers grow their businesses regardless of inevitable industry shakeups.