Crack The Advertising Auction Code VCG vs GSP vs A9

With the proliferation of channels across digital ecosystem , the programmatic ad buying process has undergone a tectonic shift over the years .

Let us have an overview of the popular auction mechanisms of the major systems in the digital marketing domain ,

Facebook : VCG

Facebook uses the Vickrey-Clarke-Groves (VCG) auction system to sell and select ads for the network. It is a sealed auction of multiple items where bidders cannot see others’ bids. Although the winner of a VCG auction is the highest paying bidder, he pays only as much as the bidder(s) he displaced by entering the auction. Therefore the right strategy in a VCG auction mechanism is to bid your true value since VCG aims for an optimal auction.

Key Points & Best Practices

  • Bidders pay less than the amount they actually bid
  • The amount the winners pay is determined by the bids they displaced
  • Align your bid with your marketing objective
  • Ensure appropriate segmentation and targeting strategy
  • Focus on creatives and adhere to the guidelines of Facebook ads

With the VCG auction, Facebook aims to find a balance between creating value for advertisers and providing a compelling experience for end-users. Optimizing your bids depends on the target groups , ad relevance and efficient delivery

Google : GSP

Generalized second price (GSP) auction has been quite popular with Google

As search engine, Google’s goal is to help you find information you want as fast as possible. It really needs efficiency for its huge system. In GSP auction, the procedure is just to assign the best ad slots to the highest bidders, which means computing the winners and the prices is a quick step.

The highest bidder gets the first slot, the second-highest, the second slot and so on, but the highest bidder pays the price bid by the second-highest bidder, the second-highest pays the price bid by the third-highest, and so on. This is used by Google Adwords as a basic framework.

They recently shifted to first price auction wherein the winner has to pay the price which he quoted to win the bid .

Amazon : A9

Amazon keyword bidding

Bidding on Amazon Advertising is a second price auction. This means that the seller who bids highest on a keyword wins the auction and gets their ad displayed at the top of the search. However, they only pay what the seller who came in second place bids.

For example, if Seller A bids $5 for the keyword “tennis ball” and Seller B bids $5.50 for that same keyword, Seller B would win the auction and rank first. However, they would only have to pay $5 every time their ad gets clicked, as that was the bid from the second place seller.

This logic trickles down to all available sponsored products spaces. Your advertisement will only show up if you win a spot in this auction. This makes selecting the right bid extremely important. You can set your ad group default bid, but this can hurt you. It’s doubtful that the bid you chose will be successful for every single keyword in the auction. Instead, set your default bid at the keyword level for the true value you can afford to pay per click. You can figure out your true value by taking into consideration your margins, conversion rates, and fees.

Thanks for reading . Thought of sharing this information as it may be useful for all digital marketing professionals to get a snapshot about the auction mechanisms across major networks.

About The Author :

Aditya Krishnan is a Digital Strategist & Consultant with 10+ years of experience across different sectors and practices . He has led and managed business transformation engagements ranging from setting up digital platforms , designing marketing strategies to leading conversion optimization, analytics projects . An active contributor and participant in the Webmasters , SEO , digital marketing, analytics professional groups/forums including trends on cyber security . He has authored several publications on various topics across portals and shares his views regularly on latest trends in the digital / marketing space . A well respected voice among the professionals in the digital domain. In addition to it he is also a reputed author , poet and an avid researcher .

Follow me on Twitter : https://twitter.com/adityaskrishnan

Connect on Linkedin : https://www.linkedin.com/in/adityasrkrishnan

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Aditya Krishnan

Aditya Krishnan

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Digital Strategist, author and speaker on latest trends in marketing, technology topics . For more info : about.me/adityakrishnan