The mediation landscape went through a generational shift with the introduction of bidding solutions, such as Fyber FairBid, in early 2018. From its inception, Fyber FairBid’s vision was to improve revenue for publishers by creating the optimal competition for their inventory – involving as many demand partners as possible in a fair, transparent auction in which the highest price always wins.
Fyber FairBid has been delivering on this promise, driving uplift as high as 30% through bidding, yet at the same time, we remain committed to continually improve on our platform by putting our demand partners in the best position possible to monetize our publishers’ inventory. Today, Fyber is announcing the gradual transition of FairBid to a first-price auction, marking an important milestone in providing publishers with the most transparent, trustworthy ad monetization platform in the market.
Second-price auctions vs. first-price auctions – Why change?
Traditionally, digital advertising auctions have been using the second-price auction model, which essentially means that the winning bid in the auction gets reduced to a ‘Clearing Price’ that is $0.01 higher than the second-highest participating bid. For example, in an auction that includes 2 bids, one for $10 and the other for $7, the winning $10 bid would be cleared at $7.01, which would be the final price paid to the publisher.
Second-price auctions are meant to create a balance between the interests of the sellers (publishers, who seek to maximize yield per impression) and buyers (DSPs and bidding ad networks, who seek to win impressions at the lowest possible price). The second price mechanism encourages buyers to bid as high as possible (which works in favor of publishers), knowing that if they win, their bid would be reduced to one cent above the second-highest bid, representing a fair market value of the impression.
This is all well and good in theory, but the reality of app ad monetization is more complex. Publishers end up leaving money on the table when exceptionally high bids, e.g. $100, are reduced to $7.01 because the second-highest bid was significantly lower.
Another shortcoming of second-price auctions for app ad monetization lies in the fact that, despite the consistently accelerating adoption of bidding solutions, key demand sources have yet to support bidding, which means that the currently prevailing model is a hybrid one, combining waterfall demand and real-time bidding into a single, unified auction.
Because waterfalls operate based on aggregated historical data, the ‘bid’ coming from waterfall demand sources is essentially a static historical average that cannot (and should not) be adjusted to pay 1 cent above the second-highest price.
By transitioning to a first-price auction, all buyers are encouraged to bid the highest price that they would be willing to pay (rather than an inflated price that counts on the second-price reduction) and bids of buyers of all types – waterfall ad networks, bidding ad networks, and DSPs will be treated equally in the unified auction.
The day after – What should publishers expect?
While the transition of our auction to the first-price model will be gradual to allow DSPs and bidding ad networks to adjust their bidding strategies, a number of clear advantages already emerge:
- Top dollar bids, no money left on the table due to bid reductions – DSPs and bidding ad networks will bid their maximum price and the winner will pay the exact price that was committed to in the auction
- Transparent, auditable platform – FairBid publishers already have full visibility into the bids and revenue contribution of every single buyer – performance of DSPs, bidding ad networks and waterfall ad networks are shown side by side in a single report. However, the move to the first-price model makes auction dynamics simpler and much easier to understand and therefore verify that the platform is free of any conflicting interests
- Simple, standardized auction – all demand sources are given a chance to monetize each impression, and all winning bids are treated equally regardless of the type of buyer that won the auction
Implementation of the change to a first-price auction will begin effective immediately on a portion of our publishers’ inventory, and the full transition is expected to be completed by early Q1 2020.
For any questions relating to this matter, please contact your Fyber Account Manager.