Auctions are the pervasive system for buying digital advertising. All major searchengines use auctions, and social, display and even television are moving thatdirection. While the digital auction is a fair system for all parties involved, thestructure cultivates market anarchy, a chaos of bidding inaccuracy that can hurtbrands and swing a publisher’s fate by hundreds of millions of dollars.
Twitter’s ad revenue in 2011 was $140 million and, according to eMarketer, is expected to top $250million in 2012. Could that forecast be an underestimate? Twitter has introduced a new self-serveplatform which GroupM Next is predicting will more than double the average cost-per-engagement.That change alone would mean Twitter’s revenue could be $300-plus million this year. Add the factthat the site’s trafc is constantly growing and its paid ads are expanding to mobile and internationalmarkets, and even $400 million in revenue for 2012 looks attainable. Twitter is poised to ride a waveof increased competition and anarchy into the upper echelon of digital advertisers.Digital auctions are not going anywhere. Whether on established platforms such as Google, or theemerging platforms of Facebook and Twitter that, comparatively, are still in their infancy, it is a systembrands will increasingly become more reliant on for buying media. Competition and anarchy willalways be factors to the bottom line of publishers and advertisers, so brands need to take control sothat ad auctions are cost positive, not negative. In order to thrive in digital auctions that exist todayand those that will come in the future, brands
use data and strategy to inform their buying. For brands to get there:
Determining the value of an impression, click or other engagement is imperative. Without this,brands are simply guessing.
Data is the path to understanding value. Data should be robust with cross-channel information.
Bid with consistency and condence. This is how brands avoid anarchy instead of feeding it.
Pick your spots. Big auctions require big bids; target your audience and nd the auctionswhere you can get the most return for your investment.
Anarchy and the Winner’s Curse
In an auction, digital or not, the information available about the item beingauctioned is imperative to its nal sale price. When the value of the item is easyto determine, the distribution of bids will be tightly grouped. In the oppositecase, where little is known about the item, the spread of bids will be wider. Thisspread is the anarchy of the market, and the more anarchy that exists in anauction, the more revenue the auctioneer makes.Imagine an auction for a 1952 Mickey Mantle rookie card. If the condition of the card is known as poor, the bidding will be tightly grouped around the valueof the card. If the condition of the card is unknown, the spread of bids will be
Hidden Factorsof an OnlineAuction
–The spread of bids inan auction.
The Winner’s Curse
–The theory that the highestbidder in an auction alsohas the highest proba-bility to have overpaid.
The Winner’s Curse:How Auction Anarchy Dominates Digital Media