Why Shortlist Media is holding off on first-price programmatic ad auctions

“Some buyers were telling us that when they came across first auction, they were just turning those publishers and exchanges off,” he said.

Instead, Shortlist Media is betting on a different method, which is more of a middle ground between first- and second-price auctions. This model would involve exchanges pushing their first-price options into the wrapper where the auction occurs, then allowing the bid to close on the second price. For example, if two separate exchanges passed first-price bids of £8.50 ($11.22) and £10 ($13.20) into the wrapper, the winning bid would then close at £8.51 ($11.23). But the initial bids would have been higher than if all were done off second-price.

Shortlist Media is talking to its tech partners about being able to implement this method. Hayter said they predict that using this method will help them gain yield increases of up to 12 percent.

“It’ll be a bit of a leap of faith from exchanges to pass their first prices through, and they’ll have to trust each other to close the auction fairly,” said Hayter. “But it’s more likely than buyers adopting first prices at the moment.”

Hayter said the promise of revenue spikes from the shift to first-price auctions is oversold. In fact, he believes the only reason for a short-term lift would be if buyers aren’t aware they’re bidding in a first-price auction. Once they realize it is not a second-price bidding scenario, they’ll redirect their spend elsewhere, he added.

“You’ll get people who will continue to test it blindly, without talking to the buy side,” said Hayter. “But the legs will fall out of it once someone fully adopts it. They’ll find most of their budgets will be optimized away from them.”