What are Ad Auctions? The Definitive 2022 Guide - Kevel

Publishers run ad auctions in order to maximize their revenue. Auction logic is used by the ad decision engine to select the ad that is most ... ProductsByAdUnit ›NativeAdsServenon-obtrusive,user-firstadsSponsoredListingsHavesellerspromotetheirlistingsEmailAdsInsertnativeadsintoyouremailsPersonalizedContentUpsellandpersonalizemessagesDigital-Out-Of-Home(DOOH)DeliveradstoanydigitalscreenSeealladunits ›ByProduct ›AdServerAPIsBuildyourownadserverRelayBuildyourownprogrammaticstackAudienceUnlockyourfirst-partydataForecastSelladspacewithconfidenceSolutionsIndustries ›RetailMediaOwnyourretailmediaplatformMarketplacesEasilyaddsponsoredlistingsFoodDeliveryIntegratesponsoredrestaurantsandproductsFintechMonetizewithnativeadsTravelAddsponsoredlistingsandpromotedoffersNon-TraditionalPublishersLaunchanewrevenuestreamTraditionalPublishersEnhanceyourdirect-soldprogramOnlineCommunitiesInsertuser-friendlypromotedpostsIn-GameandVRServeimmersivein-gameadsAdNetworksWhite-labelKevel'sadinfrastructureSeeallindustries ›DevelopersAPIDocumentation ›FullAPIDocsDecisionAPIManagementAPIReportingAPIUserDBDMPUserManagementAPITools&Resources ›APIQuickstartTesttheAPIinjustminutesKnowledgeBaseDocsaboutKevel'splatformTools&LibrariesLaunchquicklywithourpre-builttoolsAPIStatusReal-timeupdatesonAPIuptimesCustomerStoriesCustomerSpotlights ›KlarnaNativeproductadsSlickdealsSponsoredlistingsYelpIn-productmarketingTicketmasterPersonalizedeventpromotionsChairishPeer-to-peerpromotedlistingsWeTransferBeautifulskinadsImgurNativepromotedpostsTheMotleyFoolUser-targetedtextadsStravaTargetedpaidplanupsellsTouchTunesDOOHjukeboxadsSeeallcustomers ›PromotedSeeBlockthroughcasestudyWhyBlockthroughusedKevelRelaytobuildserver-sideAPIheaderbiddingAboutAboutKevel ›AboutOurhistoryandteamCareersWorkforus!KnowledgeBaseDocsaboutKevel'splatformContactUs ›TalktoSalesContactustogetstartedTalktoSupportSubmitbugsandquestionsVulnerabilitiesSubmitanysecurityissuesResourcesFeaturedContent ›AdServers-BuildOrBuy?Shouldyoubuildorbuyanadserver?TheCostOfBuildingAnAdServerAdserverscanbeexpensivetobuildScalingYourAdServerIsHardUseAPIstoscaleitfasterIsItTimeToMoveOffGAM?GAMisnotalong-termsolutionBlog&Resources ›AdPlatformAcademyResourcestostartanadbusinessKevelBlogArticlesaboutKevelandtheindustryRelayWhitepaperDownloadnowIntroducingourprogrammaticAPIsSubscribeWhatareAdAuctions?TheDefinitive2022GuideSarahWheelerJun8,2022Ascompaniesbuildouttheiradbusinesses,manygetlostinthemyriadofavailableauctionoptions,especiallyafterGoogle’spublicizedshifttofirst-priceauctions.Publisherswonder:shouldtheyusesecond-priceauctionlogic?Orfirst-price?Or,shouldtheyabandonauctionsaltogetherandjustrotateadsevenly?Toaidinthesedecisions,thisarticledefinesdifferentauctionmethods,helpingpublishersdecidewhichmodelworksbestfortheiradbusiness.Whatareadauctions?Publishersrunadauctionsinordertomaximizetheirrevenue.Auctionlogicisusedbytheaddecisionenginetoselecttheadthatismostlikelytodeliverthehighestpayout.Iftenadvertisersbidforoneadslot,theadserverwouldselecttheadvertiserwhoisbiddingthemost.Otherwise,themostcommonadselectionmethodiswhatwecall“lottery”-aka,adsarepickedrandomlyfromtheeligiblecandidates,regardlessofwhatanadvertiseriswillingtobid.Thiscouldalsobecalled“evenrotation.”Aspartofthis,eachadmayalsobeassignedadynamic“weight”toensureithitsanypredefinedgoals(impressions,clicks,etc.).ShouldIrunauctionsoverthelotterymethod?Eachpublisherhasdifferentneedsandcommitmentstotheiradvertisers.Youmightconsiderrunningauctionsif:Youhavemoreadvertisersthaninventory.Ifyouhave,say,threeadvertisersallwantingthesameadslot,havethemcompeteforit(drivingmorerevenueforyou).Similarly,ifyouhaveonlythreeadslotsperpagebutnineadvertisers,havethemcompeteforthoseslots.Youradvertisersareaskingyouhowtheycandrivemoreimpressions.Offeringadvertisersawaytocompeteformoreimpressionsthroughtheformofhigherbiddingallowsthemtotakecontroloftheirimpressions.Youoffer–orwanttooffer–awayforadvertiserstosettheirownbids.Withlotteryselection,it’soddtochargeadvertiserspayingdifferentamountsforthesameinventory.Auctionsallowadvertiserstosettheirownbids.Youarenotguaranteeingimpressionvolumes.Youmightstickwithlotteryselectionif:Youguaranteevolume.Ifyoupromiseanadvertiser50Mimpressionsforafixedamount,youneedtofillthose.Lotteryselectionhelpsensuretheyhittheirtargetsversusbeingreliantonwhatothersarebidding.Youpreferfixedbids.Havingadvertiserssettheirownbidsiscomplicated,especiallyforafledglingadplatform.It’ssimplertolaunchwithfixedbids(like$10CPMs)thatrotateevenly.Youhavemoreinventorythanadvertisers.Likehowmoredemandthansupplycanleadtoabiddingwar,theflipsidecouldleadtoarace-to-the-bottom,wheretheyknowtheycanpickupinventoryatlowbids.Usinglotterywithfixedbidshelpsensurethere’sa“floor”amountyoumake.Essentially,auctionsareoptimizedtomaximizeyourrevenuewhendemandoutpacessupply,whereaslotteriesarebetterwhenyourpricingmodelissimpler,withfixedbidsorguaranteedvolumeamounts.Whattypesofauctionsarethere?Therearetwomainkinds:1.First-price:First-priceauctionsarestraightforward:whatyoubidiswhatyoupay.Ifthreeadvertisersbid$2.00,$2.50,and$3.00respectively,$3.00isthewinningbid,andtheadvertiserpays$3.00,asseeninthisexample.Publishersusefirst-priceauctionsbecausethey:Offeryouagreaterrevenuepotential.Youmakewhattheadvertiserbids,evenifthenexthighestbidwassubstantiallylower.Arebecomingmorepopular.Google,forinstance,recentlymigratedfromsecond-pricetofirst-priceauctions.2.Second-price:Insecond-priceauctions,thewinningbidpays$0.01morethanthesecond-highestbid.IfadvertiserAbids$2.10,Bbidsbid$2.80,andCbids$2.50,Bwouldwinandpayjust$2.51($2.50+$0.01).Atfirstglance,thismayseeminferiortofirst-price,buttherearereasonstocontemplatesecond-price.Publishersusesecond-priceauctionsbecausethey:Areadvertiser-friendly.Advertisersprefersecond-priceauctionsbecausetheywon’toverpayforimpressions.Lowerpriceswillnaturallyleadtobetterdownstreammetricstoo(costperclick,costperaction,etc.),whichcouldkeepthemspendingwithyou.Ensuretruthfulbidding.Ifyouradvertisersknowyoudofirst-price,theymaytrytogamethesystemvia“bidshading,”wheretheyestimatethemarketpriceoftheimpression,versusbiddingwhatit’sactuallyworthtothem.There’sachanceaggressivebidshadingacrosstheboardcouldleadtolessrevenuethanasecond-pricemodel(inresponse,publishersoftenimplementbidfloors).Withsecond-price,however,there’snoreasontodobidshading;theauctionwilldeterminemarketvalueautomatically.Historicallyaremorecommon.Advertisersareaccustomedtosecond-priceplatforms,butasnotedabove,theindustryischanging.WithGooglegoingtofirst-price,otherswillcertainlyfollow.Doespricingmodelimpactwhetheryoushoulddoauctions?Whetheryouwanttodofirstorsecondpriceauctions,employingauctionlogicforselectingawinningadvertisercangettrickybasedonyourpricingmodel.ThesimplestmethodistohaveallyouradvertisersbidviaCPM(costperthousandimpressions).You’dthenselecttheadvertiserwiththehighestbid,maximizingyourrevenue.ButwhathappensifyouwanttoofferCPC(costperclick)bidding,whereadvertiserssettheirdesiredCPCs?Thisaddsalevelofcomplexity,asthehighestbidderdoesn’tnecessarilymaximizeyourrevenue.Ifsomeoneiswillingtopay$10perclickbutnobodyclicksontheirads,youmake$0fromthem.Meanwhile,ifsomeoneiswillingtopayonly$1butgetsclicks,youarebetteroffselectingthe$1bidder.WithCPCbidding,therefore,thebidisimportant,butsoistheexpectedclick-throughrate(CTR).Andifyouwanttodocost-per-actionbidding(CPA),youalsohaveconversionratestoconsider.Asyoubuildyouradbusiness,wedon’trecommendwritinganon-CPMauctionalgorithmyourself.It’sdifficultandinvolveshavingtocalculateanexpected-cost-per-mille(eCPM)basedonhistoricalperformanceforeveryad.Instead,werecommendworkingwithathird-partyadserver,or,ifyouwanttobuildtheadplatformin-house,integratingwithKeveltogetallthatlogicinstantly.HowdoIgetstarted?Ifyouworkwithathird-partyadserver-oruseKevel’sadinfrastructureAPIs-yougetauctionlogicout-of-the-box.Dependingonthetool,youshouldhavetheabilitytotogglefirstorsecond-price,aswellassetrulesforauctionsvs.lottery/evenrotation.Ifyouwanttobuildauctionfunctionalityyourself,werecommendworkingwithadatascientisttodevelopthealgorithmneededformorecomplexauctiondecisioning.Yourtechteamwouldthenneedtoincorporatethislogicintoyouradselectionengine.Ofcourse,thatpathcouldtakemonthsandcountlessengineeringhours.Ittakestimetocustomizeauctionlogicandensureit’sup-to-datewithcurrenttechinnovations.That’swhycompanieslikeTicketmaster,Klarna,andYelpareincreasinglyturningtoKeveltoeasilyincorporateauctionlogicintotheirin-houseadplatforms.Tolearnmoreabouthowtodoittoo,contactustoday.SarahWheelerSarahisanexperiencedwriterwithasoftwarebackground,allowinghertotranslatebetweenadtechexpertsandlayreaders.AsKevel'sAssociateProductMarketingManager,shehelpsbroadcastnewproductsandfeatures.RecommendedArticlesIntrotoAdServingWhatisanAdServer?TheDefinitiveGuidefor2022IntrotoAdServingWhatisNativeAdvertising?VideoLaunchingYourSelf-ServeMarketplacePlatform