Google opts for higher revenue, what about the advertiser?
Last week, Google caused mixed feelings in the online advertising world. The announcement to switch to a new payment model for the purchase of display ads on third party sites at the end of 2019 is not immediately received with applause.
After all, the new model, better known as 1st price auction, can increase the average purchase price of advertising space by 20 to 30%.
Will it really go that fast?
With this decision, Google is following the trend that has already started with other publishers. They chose some time ago to change their auction model. To be able to explain this clearly, the diagram below illustrates the two options.
In the 1st price auction model, all purchased impressions are settled at the effective bid price. At 2nd price auction the publisher receives in the example above the bid price of the 2nd highest bid increased by €0,01. The calculation is done quickly: the 1st price auction model is by far the most commercially interesting for the publisher.
But what about the advertisers? The new market dynamics of 1st price auction certainly brings disadvantages. For example, the new model requires close monitoring of bid prices. Whereas previously the CPM prices were corrected by the 2nd price auction mechanism, an inattentive media-buyer will pay full pot if he or she has set a wrong CPM. Alertness is needed here!!
How effective will the assumed impact be?
It is hard to say. In any case, media agencies that only work with Google as a buying platform will have to drastically change the approach and handling of display campaigns. Overestimates of average CPM prices will result in a significant drop in the media volume that can ultimately be purchased. An underestimation will ensure that no impression auction will be won.
Media agencies that work with multiple buying platforms, such as Adform, have already built up a lot of experience with this 'new' auction principle. After all, over the past year and a half almost all media within the Belgian market have already switched to 1st price auction.
How big is the cake?
An important note to the publishers. It is generally assumed that average income for websites will increase by 20 to 30%, linked to the rising expenditure on the advertiser's side. However, the question is whether media budgets will follow or whether they will remain rather stable. With the 2nd option, the cake remains the same, and revenue growth will not continue. Unsold inventory will then have to be filled with own campaigns without extra income...
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