Google Moving to First-Price Auction Model

Google recently announced that it will be making a significant change to its programmatic exchange, moving from a second-price auction to a first-price auction. According to AdAge, this change will have a significant impact on the $48 billion programmatic landscape. 

In the short term it is estimated that publishers will reap the benefits of this change, increasing their revenues as demand side buyers modify their algorithms and platforms to adjust their bidding strategy. Below is a great excerpt from the article that explains the difference between first- and second-price auctions: 

"Google previously operated on a second-price auction model, which generally speaking, is similar to winning something on eBay. For example, if the highest bidder bid $5 for an ad, and the second highest bidder bid $3 for the same ad, then the highest bidder would pay $3.01 — just a smidge more than the second highest bid. Now, however, what someone bids is what they pay. Because Google is so critical to how digital ads are bought and sold, the implications of the change will be felt across the industry."

While this change will certainly have a major effect on the industry, I think once it is fully adopted by media buyers the new landscape will slowly revert back to current prices. As with any exchange of goods and services, buyers have a willingness to pay that drive prices in the marketplace, and once companies adjust their algorithms and bidding strategies to the first-price model, ad space will eventually normalize to a fair market price.