IPONWEB throws 'shade' on first price ad auctions

Mark Johnson's picture

London-based advertising technology firm IPONWEB is promoting its Optimal Price Discovery service to help programmatic buyers bid effectively in the first-price world. 

Buy side partners currently using the tool are seeing a 15 to 30 per cent reduction in media costs, the firm claimed.

Google’s shift to first price auctions creates more transparency for media buyers and sellers, IPONWEB said, but this adds financial risk for advertisers or tech platforms that aren’t yet prepared to bid in a first-price environment. 

What is bid shading?

In second price auctions (which have been the predominant auction type in programmatic since its inception), buyers bid high on an impression to win, but pay only one penny more than the second-highest bid, the company explained. 

This minimises the risk of overpaying for media. Today, programmatic auctions are increasingly shifting to a first-price model, where the winner pays the amount they bid; depending on their bid strategy, this may result in overpaying. 

Bid shading provides a way for buyers to participate in first-price auctions with greater confidence that they aren’t overpaying for media. 

This technique takes into account a number of variables about any given programmatic auction - publisher, ad size, device, geo-location, platform, etc - and calculates a new (lower) maximum a buyer needs to bid, without reducing their probability of winning the auction. 

In this scenario, said IPONWEB, buyers are more likely to feel satisfied with the value exchange when they win the auction than if they had paid the first-price cost.  

Effective bid shading requires access to massive amounts of constantly changing bidstream data, sophisticated machine learning capabilities to make sense of that data, and accurate predictive technology that can reduce the amount an advertiser bids on specific inventory without hurting their ability to still win the auction. 

The bid shading built into most major DSP’s platforms presents a black box to buyers, while the accuracy and effectiveness of bid shading tools are not consistent across platforms, creating reporting and measurement issues for agency and brand buyers.

"With Google's shift to first price, bid shading has become a necessary tool in buyers' arsenals to ensure they're not overpaying for media purchased via programmatic channels”, said says IPONWEB Product Lead, Nikita Borisenko. 

“Platforms that don’t have bid shading capabilities will find it harder to satisfy agency and advertiser demand for performance and efficiencies - and are likely to be optimised out of buys”.

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