Google switches AdSense to a first price auction

First price auctions come to Google AdSense.

The change will come into force later this year, Google saidlog post on Thursday.

Google Ad Manager and AdMob have already switched to a first price auction.

However, not nearly as significant as Google flipped the switch For Ad Manager, the AdSense change signals that the momentum behind the move to first-price auctions hasn’t diminished.

While most of the ecosystem has already switched to a first-price auction, AdSense has lagged behind.

Meanwhile, Google’s auction business practices are under increased scrutiny.

An antitrust lawsuit brought against Google by attorneys general for Texas and other states raises allegations of illegal monopoly, centered on the Google Display Network — which includes AdSense for Content — and Google Ads, which bids on AdSense.

Given the lawsuit, it makes good business sense for Google to eliminate a controversial practice.

Compared to a second-price auction, first-price auctions are simpler and more transparent for buyers. You bid $7, you pay $7, end of story.

In second-price auctions, the spread between an advertiser’s bid (same $7) and the second price (maybe as little as $2) leaves potentially large margins in between. In our hypothetical example, that would be $5 up for grabs if an exchange wanted to rig the auction.

Technology companies often pocketed some of that spread, sometimes innocently labeling the margins as “Buyer Fees.” Likewise, exchanges could use a “rebate” received on a bid to subsidize another auction, thereby increasing the exchange’s overall win rate.

The excitement surrounding the so-called “ad tech tax” probably wouldn’t have reached such a boiling point were it not for the second-price auction model and its unclear fee structure.

Google, in particular, has designed its second-price auctions to give itself an advantage. Since Google controls both an exchange and the dominant ad server, it didn’t bid blindly in the auction, but rather gave itself “last look” and an opportunity to trump the other bids.

Because of this practice, it was widely believed that win rates through the Google exchange were higher than through external exchanges.

In his blog entryAccording to Google, switching from AdSense to a first-price auction should have a neutral impact on publishers.

The change will “increase advertisers’ confidence in digital advertising,” said Google product manager Matt Wong, noting that the lack of transparency in second-price auctions made advertisers uncertain about where their programmatic dollars were going.

In theory, this move should benefit external DSPs bidding on AdSense as the auction offers a more level playing field.

But the industry is a little iffy.

Since the move excludes AdSense for Search, Google’s dominant and exclusive product, the question is, “What difference does it make?” said a media executive who wished to remain anonymous to speak out against Google. “I expect this will allow Google to make room in its black box for expanded bidding and monetization capabilities.”

This skepticism stems from the fact that Google has made changes in the past that purportedly aimed at increasing transparency, but with hidden benefits to itself that were only later discovered. For example, one of the allegations in the legal action The benefit put forward by the state AGs is that Google has removed its last look benefit 2017A “bid optimization scheme based on predictive modeling” has “redesigned the ability to act ahead of the competition”.

In other words, a black-box machine to stay ahead.

The media executive also pointed out that AdSense continues to provide a treasure trove of data, which Google uses for all of its advertising products — something Google itself publicly mentioned recently when discussing its move Big data-powered AI attribution modeling.

So what about AdSense’s move to a first-price auction?

Depending on how you view Google, the change either continues the slow move toward transparency and equality, or it’s part of a larger restructuring that will ultimately keep Google at the forefront.