Rubicon Project promises an end of ‘black box’ era as it tests new auction dynamics

The new auction dynamic has been dubbed 'Modified First Price', and will be offered in conjunction with its 'Modified Second Price' model, with the adtech outfit emphasising to clients how the new model is a signal of its commitment to transparency.

A note sent to Rubicon Project clients claimed the update was designed to "increase the probability of winning high value impressions in a downstream auction", adding that it "will not charge buyer fees for transactions cleared via this dynamic."

It went on to describe its 'Modified Second Price Auction' as its "standard auction dynamic." It read: "The clearing price is the second highest bid, which may be adjusted plus the greater cent or the applicable price floor. We charge buyer fees for transactions cleared via this dynamic."

A new approach

This is the first time Rubicon has adopted a dual auction model approach. It has traditionally favoured the second-price auction model, in which a buyer puts in a bid for an impression which they believe equates to the value of that impression, but only ever pays $0.01 above the second highest bid.

However, this model has been called out for its lack of transparency, given there is room to drive up clearing prices in the 'black box' between a buyer's bid and the final price that is communicated to the seller.

By comparison, in first-price auctions the highest bidder who wins the impression pays the price that they bid, so there is no wiggle room for opaque fees.

The first-price model provides full transparency to both the buyer and the seller of the fees they incur by participating in an auction, said Rubicon Project's chief technology officer Tom Kershaw, speaking with The Drum.

Kershaw said he believed that a fully transitioning to a first-price only model would "only serve a small fraction of the transactions", and therefore create more problems for publishers and buyers than it solves. This signifies Kershaw's belief that "all impressions are not created equal", therefore taking one model and applying it to all media channels "makes no sense".

He added: "We have to start to differentiate which ads have which value, and it really comes down to the audience segment that buyers are trying to reach," he said. "Instead of treating everything the same we will have high value types of ads based on audiences and formats that will have first-price auctions and others that will run second-price auctions."

This is because first-price auctions tended to favour the "top 10% of ads", and that employing this model on its own made everything else "unmonetisable", according to Kershaw.

"That creates more problems for publishers than it solves and it also means that buyers can’t fulfill their campaign objectives because they spent all of their money on 10% of the buy. This the correct balance that allows us to achieve the best of both worlds," he said.

Second-price still has a role

Additionally, second-price auctions are "the way to go over the long-term", Rubicon is of the belief with Kershaw having added that this model will drive liquidity into the system and allow buyers to bid the true value "as opposed to shaving or reducing their bids."

Speaking at this week's summit, Rubicon's leadership conceded that continuing to favour a second-price model if the rest of the industry was working towards a first-price model, meant that it simply wouldn't win the impressions that its buyers wanted. As a result, part of the drive in adopting the hybrid model will be to make sure its buyers continue have access to inventory.

But the main driver to the new tech was transparency, after a year "that has caught some headwinds" when it cameto brand safety and pricing models, said chief executive Michael Barrett, speaking earlier this week at Rubicon Project's European Publisher Summit.

The adtech outfit's revenue fell to $42.9m in the second quarter, resulting in a $11.6m loss, while Barrett said the industry experienced a third quarter in which certain marketers stopped spending online due to brand safety concerns.

"This is not what you should expect from an industry that has been up and going for 10 years," he commented.

Transparency in the spotlight

It was the concern around the transparency of second price auction dynamics which initially spurred the Guardian's lawsuit against Rubicon for allegedly failing to disclose fees earned from advertisers that appeared on the publisher’s site.

This has thrown the issue of pricing firmly into the public spotlight this year. The lawsuit came after the publisher bought its own inventory and found that in the worst cases the publisher received as little as 30 pence for every £1 spent by advertisers.

On this, Barrett commented: "We have done a really good job at letting our sellers and our publishing partners know what price they are paying. I don’t think we have done as great a job on the buy side and I certainly don’t think we have done a great job educating everyone on what our total take rate is."

Barrett promised both buyers and publishers that they would now know exactly how much is being taken out if $1 goes into a Rubicon auction. "We are committed to that model and also committed to complete transparency as relates to the overall cost of the programme. In terms of trying to solve this whole question about supply path optimisation, our response is to be radically transparent about the auction mechanics and the cost of selling and buying," he told attendees at this week's summit.

"It is certainly a test, we don’t think we have all the answers or insights, but I think we are going down the right path with optionality and I know we are with transparency," he added.

A welcome addition

Commenting on the latest auction dynamic update, Wayne Blodwell, founder and chief executive of the Programmatic Advisory, said there are "many pros and cons" for first or second-price buying for buyers and sellers, but from a buyer's perspective "all you wish for is transparency on how a seller is selling their impressions and a choice on how you buy those impressions".

"This announcement from a market leader brings that transparency and choice which will enable different types of buyers to optimise to the method that works best for their campaigns. Ultimately, for programmatic to continue to grow buyers and sellers both need to win and this is a very positive step in the right direction" Blodwell said.

OpenX is joining in as well

This comes the same week as fellow adtech outfit OpenX made a similar move, announcing its own first-price auction functionality – the culmination of a year-long drive to improve transparency along side its demand-side partners.

Core to this development was the belief that buyers must be "empowered with complete transparency into the type of auction they were competing in," read a press release about the update.

In the same release, Jason Fairchild, OpenX, chief revenue officer, spoke of this shift in preference for different auction dynamics being spurred by the industry's shift towards header bidding.

The release goes on to read: "OpenX’s first-price auction technology provides buyers with full transparency into the auction type, via a unique identifier in the request, while offering unparalleled insights and control to optimize bidding strategies."

"Building enduring trust in the programmatic value chain requires participants have full transparency into whether the auction is run on a first-price or second-price, providing buyers with total control over how they wish to engage in the auction," added Fairchild.

"This transparent approach will enable an orderly evolution to an industry-wide auction construct that empowers buyers and publishers to do business with confidence.”

Last month, Rubicon Project announced that it had acquired nToggle in a deal valued at $38.5m and claimed that it would help drive down its costs for media buyers.