Marketers are scrambling due to Google’s announcement that it is changing its programmatic advertising model. Many wonder if this will mean their digital advertising strategy is about to become more expensive.

According to the new plan which was announced in March, Google Ad Manager will move to a first price auction and leave behind its current model. Google had this to say about the switch, “By simplifying our auction in Ad Manager, we can help make it easier for publishers and app developers to manage and get fair value for their inventory.”

The switch isn’t happening all at once. The rollout will take the majority of 2019, but Google expects to be completely switched to the first price auction model by the end of the year. They are hoping that this change will streamline the process and make it a lot easier for Google’s advertising partners.

It is also important to note that this change is only affecting Google Ad Manager. The other auctions like those on Google Search, AdSense, and YouTube will not be affected.

What Does this Mean for You?

The way that the ad manager worked previously was similar to the process used on eBay: the second-price auction model. What that meant was the highest bidder paid just a tad bit more than the second place bidder. Let’s say the highest bid was $3 and the second place bid was $2. Then the highest bidder would pay $2.01 for the ad.

Now, with a first price auction, the highest bidder will pay their bid price. While you will still win the auction just the same as before, you will now be paying a higher price for that win. Using the example above, if you win with a $3 bid, then you will pay $3 whereas before your price was $.99 cheaper.

This will likely mean that the cost of your programmatic advertising will go up rather significantly, at least in the immediate future. This is because the current systems are all set up with the second price auction in mind. It will take some time to adjust to the new model.

The biggest adjustment for the advertiser is that they will need to have a better understanding of the market pricing to avoid overpaying with their bids. While this knowledge is certainly a good thing, the problem may occur when others don’t understand the market. By bidding too high, they will drive up the costs for everyone. You can still continue to bid at the correct market price, but you will likely continue to lose out to the advertiser that is overbidding.

Organically has Experts in Programmatic Advertising

If this all sounds confusing to you, don’t worry! You aren’t alone. Many business owners struggle with programmatic advertising and building a digital advertising strategy that is cost effective. Let Organically walk you through the process and help you come up with a winning strategy. We can work together to build a programmatic advertising strategy that will get the results you desire without destroying your budget.

Source: https://adage.com/article/digital/google-adx-moving-a-price-auction/316894

https://www.adpushup.com/blog/google-ad-manager-switches-to-first-price-auctions/

http://www.mediatwo.net/mediainsights/what-does-unified-first-price-auction-mean-to-a-marketer/