Over the last several years I have had this feeling – Why should an environment be artificial when there is full automation? What I mean by this is that, the artificial Second Price Auction for a win at a 0.01$ increment to the second best bid sounds ludicrous.
Why?
Simply because a particular audience or a particular inventory when in demand attracts a particular price and the buy side artist knows whats the best price he or she should pay. Given the perspective the bid is made to acquire a particular consumer’s attention at a particular price, this is the reason why in the programmatic world bidders are so important in an operations team.
But if you take that bit away then you have mundane robot like humans just bidding at an escalated price point knowing very well that they will never lose money and whatever the bid they make will eventually get the better off with a 0.01$ increment from the second best thus by securing a particular audience.
Now this is a sham, for me if the control has to be on the buy side fully then the only transparent methodology has to be first price auctions. This ensures that no hidden costs exists and no SSPs benefit given the full transparency at the buy side at a clear price enables absolutely value for the audience the buy side is acquiring.
More and more measures for accurate pricing is required to ensure full transparency, it began with ads.txt on the supply side and now I am seeing a whole lot in the US moving slowly but steadily to the First Price Auction methodology on the demand side as the metric for bidding. The only issue would be for high end inventory, which are upwards of 25$ for example, these kind of inventory should ideally be in a PMP environment thus reducing all aspects of risks.
I strongly believe that First Price Auctions will be the only method come 2019. Move over second price auction, you will be respected in history!
Authored by: Rammohan Sundaram, 3X Entrepreneur|Consumer Internet|Programmatic Pro|Digital Marketer|HBS