In association with Yieldbird.
Writing exclusively for ExchangeWire, Marcin Ekiert (pictured below), CEO and co-founder of Yieldbird, closely examines the potential implications of Google’s transition to a first-price model, and how technological solutions can be used by publishers to mitigate its impact.
Google’s decision to change auctions on the Ad Manager platform to a first-price model created a lot of questions from the ad tech industry in the first half of 2019. Although most of the other major platforms already operate in this environment, both advertisers and publishers were uncertain about the full impact of this change on their businesses, considering that we are talking about the most substantial platform within the programmatic advertising ecosystem.
One thing is certain, advertisers and publishers alike will have to adjust, or in some cases completely rethink, their ad management strategy in order to keep their results at an optimal level. The question is: what kind of strategy will be the best in this new, quite unknown, reality?
The situation for advertisers looks a little better, at least at first glance, considering that it is expected that the bid shading algorithms provided by the most of DSPs will increase in popularity, and become highly established on Google’s demand platform. It means that media buyers will have some assistance in predicting how low they can attempt to lower their bids, whilst still winning the impressions that they are interested in. As a result, they will still be able to deliver the KPI’s of their campaigns for their final clients at a similar or lower cost, thus continuing to make their efforts profitable.
Publishers at a crossroad
However, the future does not look as bright for the sell side. Although there are many voices saying that the incoming change will bring a lot of good with the improvement of transparency, the simplification of the purchasing process, and a move away from Google’s last look, there are certainly more prominent challenges at the moment standing in the way of publishers. Apart from the limitations introduced by the shift to unified pricing rules (UPRs), such as the removal of buyer network targeting, anonymous transaction types, or the introduced limit of only 200 rules per network, the main concern seems to be a need for Ad Manager setup restructuration, and the revaluation of pricing strategies.
There are at least a handful of popular approaches to this issue being discussed in industry forums and meetings, one of which is the suggestion to not set floor prices for the inventory in order to not limit demand and thus avoid cutting out any revenue. However, experts from the field of ad management are saying it is one of the worst things publishers can do to their business. Having no protection over inventory will very probably result in it’s devaluation over time, as advertisers will use supply path optimisation to find the cheapest channels and to buy the inventory that they are interested in. DSPs are already making claims on their websites offering savings of 20%–40% for advertisers using bid optimisation mechanisms, so we can easily assume that the ones paying for these savings are publishers that are unaware of how to protect inventory value.
Knowledge is key in the first-price ecosystem
Another approach, which is getting a lot more recognition in the eyes of the industry, is one which requires publishers to have a very good understanding of their inventory quality, performance, and value, in order to create a comprehensive pricing strategy focused on the long-term perspective. It takes into consideration the fact that the usual floor price optimisation, popular in the second-price ecosystem, will no longer be very useful as every floor will result in cutting some part of the demand. The fact is that a properly created and adjusted pricing strategy will now be the only thing protecting publisher inventory from gradual value devaluation by the bid shading.
The main question is what to look at in shaping one’s approach. There are at least three groups of factors publishers should take into consideration while developing the pricing strategy, and they are related to the key elements of the market environment:
1. Inventory quality: Surely the most important element of the whole puzzle. Recognising which elements of your inventory are the most valuable in terms of quality (CTR, visibility) and performance (rCPM, eCPM) can either help you to either generate even more profit from them (within the first-price environment, competition for the best impressions can even increase), or to locate areas of improvement for the product development teams. This knowledge will also allow you to create specific inventory packages which, in correlation with specific price ranges, should equate to much higher fillrate and RPM levels. Concurrently, fillrate and overall user experience should also be analysed and evaluated as a standalone matter, as too much ad clutter and an unfriendly site experience can often result in session duration shortage, user churn, and a severe decrease in income.
2. Advertiser behaviour: One of the positive results of Google’s shift to UPRs is the introduction of bid landscape data availability for all buyers on the Ad Manager platform. It will allow publishers to better understand the purchasing strategy of their clients, and will make it possible to assess which users or inventory elements are most valuable for the advertisers. Combining this data with the archival analysis of the spender’s behaviour, trends, and priorities, will give publishers a chance to come up with detailed approach to their main revenue contributors and provide better protection against the buy side optimisation algorithms.
3. Competition: Last but not least, an important element of the ecosystem in creating a smart and sustainable pricing strategy is the awareness of competitor inventory quality and the price levels at which they are selling it to the market. It will be relevant because there is a serious chance of missing out on significant campaign budget if some publishers start asking for 20-30% more money for inventory which has much lower visibility, CTRs, or the overall final ROI, in comparison to the other websites on the market.
Technology helps as always
All of this may look like a serious amount of work, but by introducing a ‘wait and see’ strategy, instead of digging into the details, publishers risk losing much more than time. As always, in such cases there are already platforms on the market, such as Yieldbird Insights, which can help publishers avoid doing all the analysis manually on countless spreadsheets or pivot tables. With the support of these tech platforms, yield managers and ad ops personnel can focus on important matters like product and content improvement, tracking performance opportunities, and quantifying revenue risks much faster, granularly, and without dedicating hours of their time on a daily basis.
Considering that publishers will be in need of support in making educated decisions about how to direct their actions, we can expect some new tools to be created and rolled out to the market in the upcoming months. Here at Yieldbird we are expecting that most of them will be focused on giving publishers additional data about market trends and spending standards, or on helping them to evaluate what kind of revenue changes they will face from specific demand channels after changing to UPRs. Also, if the supply path optimisation trend will increase after the introduction of first-price rules, as some industry players expect, there will likely be an opportunity for technology providers to give publishers some more understanding of, and protection for, their business.
The full rollout of first-price auctions on the Ad Manager platform was recently postponed to late August / early September, so we will know more about all positive and negative effects from this change just before the high season of Q4, with Black Friday and Christmas spending. It means one thing for sure – a busy summer and autumn for yield managers searching for their safe way forward. For those who want to learn more about this topic, we will be hosting an event on 2nd October 2019 in London to discuss and analyse the first effects of the upcoming shift.