What is Open Auction Pricing in Programmatic?

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Open Auction Pricing in Digital Advertising

Open auction pricing in programmatic advertising is a tactic used to expose a publishers inventory to the largest potential pool of advertisers. In an optimal real time bidding auction with revenue being the most important value, every single impression should be sold to the buyer who wants to pay the most. Many RTB ecosystems are driven by open auction pricing for the majority of all tiers of inventory.

Benefits of Open Auction Pricing Methodology

  • 1000’s of advertisers competitively bidding on each impression – leads to high CPM’s
  • Diverse set of targeting and creatives to engage the user
  • Market dictates the value of the inventory
  • As demand increases, inventory becomes more scarce and valued which drives up the price of the bid

In an open auction pricing system, the buyer and seller usually do not have any direct relationship. The Lumascape offers a detailed, yet confusing depiction of how an ad impression flows from the advertiser to the publisher. Let’s simplify it down a bit for this example.

Open Auction Pricing

In the most basic explanation for open auction pricing advertiser dollar flows from a buyer who is an independent advertiser, agency trading desk or, demand side platform to an ad network that houses supply and demand in their system, to the publisher who receives the money for their inventory at every successful bid auction.

With open auction pricing, generally the publisher will provide a basic advertiser, brand, URL and/or category block list to eliminate unwanted creatives and competitors. After going through the new publisher on boarding process by the ad network which includes signing an IO, payment forms and other agreements, they will be issues iframe or javascript tags to implement directly on to their websites or within an ad server such as DFP.

Once tags are implemented, the programmatic ecosystem begins to bid and optimize buyers with the end goal of generating the most revenue possible.

Negatives of this model

While showing your ad inventory to a variety of buyers at the same time and allowing a whole bunch of advertisers to bid, having this much “madness in an auction can lead to some issues.

  • Diluting the value of your ad inventory by selling at low prices
  • Broken creates or overall low quality advertisements shown
  • Not enough ad impressions for direct advertisers or private marketplaces
  • Too many demand partners to manage, contracts and payments, creating a cash flow that is too tough to manage.