There are three basic auction types that we can see in Real Time Bidding (RTB) where the auction model will be decided by the platform that publishers’ use. However, these platforms will help both the advertisers and publishers to achieve their advertising goals effectively.
Let us look in to how an advertiser wins the RTB auction using the platforms.
- RTB process starts when visitor visits the web page
- The bid request or ad request sends the user data such as demographic information, browsing history, user location, device type, IP address, and other required information
- The bid request sends to the ad exchanges connected to the publisher ad server to find out the relevant advertiser to participate in the auction.
- Ad Exchange will review the advertiser information matching to the bid request received from the publisher to enter the auction
- RTB auction will take place with the selected advertiser
- The highest bidder will win the impression and ad will served on the publisher’s web page.
The publisher ad server and ad exchanges will run through this process every time when the user visits the web page. Also, the RTB process will be completed within 100 milliseconds.
Here’s an article to learn What is Real Time Bidding (RTB)? How Does RTB Work? to understand the RTB Auction types
Let us look at the 3 bidding auctions in detail to understand better.
First Price Auction:
The highest bidder will win the impression in the auction and allowed to serve the ad. The advertisers need to place highest amount to win the bid at all the time if they wanted to serve the ad through ad exchanges which are following the first price auction model.
For example, advertiser A will bid $1, advertiser B will bid $2 and advertiser C will bid $4 in the auction. The highest bidder advertiser C with $4 will win the auction and allowed to serve the ad. Also, the advertiser needs to pay $4 to the publisher in this auction model.
The advertiser may need to set higher bid amount to win the impression in open auction model considering the competition. The advertiser needs to aware of open auction competition to avoid in paying higher amount to the impression in this auction model.
This is one of the effective auction models for private auction considering the limited participation in the auction.
Second Price Auction:
The second price auction is similar to the first price auction where the highest bidding advertiser will win the bid, but the advertiser pays second highest bid amount plus one cent.
The second price auction is most suitable for the competitive open auctions because it allows advertisers to bid aggressively to win the bid against their competitors. However, the winning advertiser will end up with second highest bidding amount instead of paying the actual bid amount.
The publishers have an option to set the floor price in the Supply Side Platform (SSP) which is minimum price for which the publisher wanted to sell their inventory. The Demand Side Platforms (DSP) are not aware of the floor price set by the publisher. The ad exchange will allow the advertiser who are paying more than the publisher’s floor price to participate in the auction.
Here’s an example to understand second price auction.
- The publisher has set the floor price as $2 to sell their inventory.
- Ad exchange send the bid request to participate in the auction
- DSP A, B and C respond to the bid requests with the price of $2.5, $3 and $3.5 respectively.
- DSP C will win the bid by bidding $3.5 for the impression.
- Since, this is a second price auction, the DSP C will pay second highest bid $3 plus $0.01 (1 cent) to the publisher. The final price will be $3.01.
Guaranteed Auction or Fixed CPM Model:
The advertiser agrees to pay the pre-decided amount for a specific type of ad inventory in the guaranteed auction or fixed CPM model. This advertiser bid will surpass all the bid placed by other advertisers irrespective of bid amount.
The advertisers will buy all the desired inventories with fixed price over the first and second price bidding to run their ad campaigns without loosing the impressions. For example, the brand A will block all the desired inventory on the website through guaranteed auction and promote their ad campaign over other auction types.
Conclusion: The Real Time Bidding (RTB) auction types have their own pros and cons in the programmatic advertising where advertisers and publishers needs to have some knowledge about the type of auction they are selecting to meet their business goals through the ad campaigns. We will discuss the waterfall method in the next article to understand if multiple ad exchanges participating in the auction.