First-Price Auctions: Reviving Control in Auction Dynamics

Kyle Dozeman headshot
By Kyle Dozeman, Chief Revenue Officer, Americas
February 1, 2018

Our mission at PubMatic is simple: to fuel the endless potential of internet content creators. As consumers, we all crave and engage with content, journalism, entertainment, and services that the internet delivers to us. A vibrant and healthy internet is important to an open, informed, and democratic world. Content creators (publishers and app developers) rely on advertising, with the help of companies like PubMatic, to help them drive profitable business outcomes.

The Rise and Fall of Second-Price Auctions

Historically, programmatic technology companies developed tools for real-time bidding using a second-price auction, where the winning bidder paid less than their bid price. Under the right conditions, we believe second-price models may still provide better suited auction dynamics for an effective marketplace for publishers and advertisers (learn more with our Understanding Auction Dynamics white paper).

However, changes driven largely by the proliferation of header bidding have impacted how auctions operate. Inconsistency across auctions and lack of transparency into how each auction operates has created an environment where buyers do not have visibility into whether auctions are being closed at first- or second-price.

This makes it difficult for them to set bidding strategies that allow them to simultaneously maintain access to impressions and consistently increase spend. These inconsistencies create challenges for buyers, benefiting neither them nor the publisher.

After listening carefully to our customers and analyzing data from across our platform, we’re implementing changes at PubMatic to increase buyer control in auction dynamics.

Move to First-Price

PubMatic now runs first-price programmatic auctions on all multi-level inventory (i.e. header bidding).

We’ve made this decision to meet the demands of the evolving landscape and address requests from our demand partners. Tag-based inventory (i.e. waterfall) will continue to be transacted via second-price auctions. To support our DSP partners with this change, we leverage the IAB’s OpenRTB 2.3 and 2.5 specs and pass the auction type and destination flags (“at=1”, “fd=0/1”) in the bidstream.

These parameters empower DSPs to set the appropriate bidding strategies based on the type of auction they are participating in. To ensure stable CPMs and to avoid decreasing bid activity, DSPs that are still transitioning their bidders to support first-price can elect to have PubMatic employ its proprietary bid shading technology. To do this, we leverage machine learning to improve the overall win rate in the wrapper auction while reducing bid price for DSPs.

By providing bid shading for DSPs that request it, PubMatic is helping publishers maintain access to demand while buyers can still access impressions without disruptive fluctuations in pricing. Our partners are already utilizing this technology with success.

Building Trust

We understand that the changes we’ve made reflect a larger effort by both publishers and buyers to identify partners whom they can trust. PubMatic believes buyers deserve to know how our auction operates so they can use the most appropriate bidding strategy for each auction type. Likewise, we believe publishers deserve to know how our auction operates so they can understand their yield and improve it.

We are committed to investing in technology that operates a fair and transparent auction. As the ecosystem evolves, we’ll continue to listen to you and incorporate your feedback to ensure we are aligned on your business objectives. For additional information, please visit our Support for First Price FAQs or contact us.