Google announces it will complete AdSense transition from second-price to first-price model by the end of 2021 to simplify how most popular advertising network work.
There is no action for advertisers or publishers to take and these changes will occur automatically, said Google in a blog post.
"By streamlining the auction model across AdSense, Ad Manager, and AdMob, we are aligning our process with other ad selling platforms in the display advertising ecosystem."
On display ad selling platforms, a first-price auction simplifies the buying experience for advertisers because the final price reflects the winner’s bid.
What is the difference between first-price and second-price models?
Assuming you are an advertiser competing for an ad space via Adsense:
First-Price Auction Auction:
- Bidders submit bids b(1), ..., b(n).
- Bidders with the highest bid wins.
- Winner pays exactly what their bid was.
Second-Price Auction Auction:
- Bidders submit bids b(1), ..., b(n).
- Bidders with the highest bid wins.
- Winner pays the amount of the second highest bid + $0.1 (lower than what their own bid was).
For many years, second price auctions have been the most widespread model in digital programmatic advertising, and are said to favor the advertiser. The model was often criticized for making it hard for publishers to optimize their ad revenue.
Will publishers earn more?
Although technically the first-price model appears to be superior in increasing publishers' ad revenue, theoretically the final revenue over a period of time is likely to be equivalent (similar), according to the revenue equivalence theorem.
According to the concept, in general, if all bidders are risk-neutral bidder and have independent private value, any two auctions implementable in a Bayesian Nash equilibrium, the payments/revenue will be the same with some normalization.
In this case, Google also says the switch will likely have neutral impact on publishers' revenue.
"Due to the dynamic auction environment, we cannot predict how specific AdSense publishers will be impacted. But, on average, we expect the impact to AdSense publishers' earnings overall from the move to a first-price auction to be neutral. When Ad Manager moved to a first-price auction, there was a neutral to slightly positive impact to publisher earnings on average."
