Google switching to ‘first price’ model for AdSense offerings

By MixDex Article may include affiliate links

Google’s massive AdSense network is switching to a “first price” auction method — a move that will ultimately likely mean slightly higher advertising costs for advertisers but relatively flat earnings for publishers.

Most of Google’s other advertising tools already use the first price approach, which means that advertisers pay (and publishers collect a portion of) the actual bid they made. Before, the “second price” model meant that the advertiser whose ad “won” the auction actually ended up paying the second highest cost.

AdSense is a popular platform that publishers can use to let Google fill with behaviorally relevant and, in some cases, personalized advertising. It is popular among digital publishers, who get a cut of what Google collects. The ads shown can be banner ads, text ads or dynamically generated ones.

The change will take place across AdSense for Content, AdSense for Video and AdSense for Games, but AdSense for Search and AdSense for Shopping will not be affected.

This change also does not affect the ads that appear in Google or its partners’ search result pages (though this already uses the first price model). These were formerly known as AdWords but rebranded as Google Ads.

When Google’s servers are determining the “best” ad to display on a particular publisher’s site, it takes a variety of factors into consideration, including the viewer’s behavior and profile but also, perhaps most importantly, what each advertiser that could potentially show an ad in that spot is willing to pay for an engagement.

That’s where the “auction” format comes in. Under the old model, Google would charge the advertiser the cost the “second place” advertiser was willing to pay, which could be just a penny different or somewhat or significantly lower. The new change will mean advertisers will be charged whatever they bid for the engagement — so the bid becomes a more of a “not to exceed” number.

Google says it’s doing all this to simplify the buying process and bring more consistency with other advertising services.

The bottom line is, however, that Google is going to start collecting more money for ads — though in many cases it could just be a penny more. Keep in mind, however, that millions of ad engagements per day that cost just a penny more adds up quickly for a giant like Google.

Google also says that it this model will make it easier for advertisers to budget their spending. Under the second price model, advertisers knew the maximum they were going to pay per engagement — but they ultimately could be charged less than that.

There seems to be at least a little spin on Google’s simplification argument — since most advertisers would likely say they’d rather be charged less than expected rather than exactly what they budgeted for. However, again, since the difference in first and second bids can be so small, this isn’t likely to cause a big upset in planning.

Despite a potential increase for Google, it says publishers should expect to see little to no difference. In its past transitions to the first price model, revenue was either flat or slightly positive.

Google currently says it gives publishers 65% of AdSense for Content revenue, but doesn’t disclose the revenue share for other AdSense products, saying “the revenue share varies for other products due to different costs of developing and supporting these products.”