The programmatic industry has been working towards more transparency by defining and implementing industry standards. However, there is more work to be done for a successful marketplace. Writing exclusively for ExchangeWire, Ryan Gauss (pictured below), EVP of Product, AerServ, explains that while the programmatic industry has been cleaning up their act around transparency, both buyers and industry organisations need to demand further clarity to continue to move the industry in the right direction.

The ad industry has been occupied lately with the topic of the programmatic auction type and how transparent it is. Aside from any custom auction mechanics, which is rare, almost all auctions will be either first- or second-price. Simply put, in a first-price auction the highest bidding party pays what they bid and in a second-price auction the highest bidding party will pay one cent higher than the second-highest bidding party. The auction type has been the recipient lately of much discussion, due to some unscrupulous practices certain SSPs use in order to raise the final second auction price. This has angered buyers who have little transparency into what takes place to settle on the final price.

Aside from the varying techniques some SSPs use in their auction mechanics, the most surprising element is that the auction type is not specified for many auctions. Deceitful practices will always exist in any industry until a light is shone on them and the unsavory practices are rooted out, which is why there is some momentum gathering around making programmatic auctions first-price. But if the auction type is not specified in every bid request, then the auctions will be left open for continued abuse.

The programmatic ad industry has helped to foster this loophole by how it has defined and enforced the auction type field in the bid request. The Interactive Advertising Bureau (IAB), which created and maintains the Open RTB (oRTB) industry specifications and guidelines, has specified that the auction type field is not required. Although the IAB specifications are only guidelines, and it is up to the buyers and sellers to enforce them when they specify something as not required, more often than not, there will be no enforcement.

If the programmatic ad marketplace is serious about transparency, then the IAB needs to define the auction type field as ‘required’ for all bid requests. The current version of the IAB RTB specification states that the auction type field should default to a ‘second-price’ auction. Based on that definition, buyers should expect that a bid request without a specified auction type should be treated as a second-price auction. But, as previously stated, buyers have discovered that this does not always happen and, in some cases, SSPs are deciding to run the type of auction that benefits them most. Buyers should not be surprised with this outcome if they do not require that the auction type is clearly stated and included in every bid request.

Ryan Gauss, EVP of Product, AerServ

Imagine going to a grocery store and buying an item that had a price range rather than a single price. Then when you go to checkout the cashier decides whether to charge you the full price or some price within that range. That is essentially what is happening when buyers operate within an auction without a stated auction type. Programmatic buying will always have a level of price variability when participating within a second-price auction, but the buyer should at least know what type of auction it is and should not have to assume.

Requiring the inclusion of the auction type in every bid request will not solve all the transparency issues within the programmatic environment, but it is a necessary first step. There are still numerous changes that must take place to clean up the second-price auction marketplace; but if the auction type is always present, then a buyer will at least know the type of auction they are competing within and they can weigh the potential risks. Without the auction type, buyers are left guessing what type it is, which leaves the door wide open for abuse.

There should be no finger-pointing regarding the current state of the programmatic industry, all parties involved deserve blame. The industry is taking steps to clean up the unsavory practices and bring more transparency so it is moving in the right direction. In addition to the changes already underway, buyers need to demand that every programmatic bid request contains a specified auction type and the IAB needs to modify their oRTB specification to define the auction type field as required. These changes will help to make the programmatic ad marketplace more transparent and equitable.