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Criteo Sponsored Products moves to First-Price Auction

As of November 2018, Criteo Sponsored Products is moving from a second-price auction to a first-price auction. Criteo is prioritizing contributing to a more transparent advertising technology ecosystem. This shift can benefit you by enabling you to: 

  • Have more clarity and control over your advertising spend without added manual work 
  • Improve revenue predictability and performance by leveraging Criteo’s machine learning-driven automated optimization models like the Sales Optimizer 
  • Avoid overspending by eliminating the need to bid more than the inventory’s value.

There are a few actions we recommend you take in order to maximize your advertising efforts leveraging this new auction type. You may leverage the below FAQ in order to understand the changes you may need to make and how you should approach bidding under a first-price auction. 

How does a first-price auction change the way inventory is bid upon? 

Moving from a second-price auction to first-price auction will change the way inventory is bid upon, and how much an advertiser who wins the auction will pay. Here’s what happens when advertisers place a bid with a second-price auction. 

Before (with a Second-Price Auction): 

  • Advertiser A bids $2.00 
  • Advertiser B bids $3.00 
  • Advertiser C bids $4.00 

Advertiser C wins and pays $3.01 for the inventory. 

After (with a First-Price Auction): 

  • Advertiser A bids $2.00 
  • Advertiser B bids $3.00 
  • Advertiser C bids $4.00 

Advertiser C wins and pays $4.00 for the inventory. 

In summary, with a second-price auction, the price the winning advertiser will pay is the second highest price, plus one cent; with a first-price auction, the price an advertiser will pay is the price they bid. Maintaining a first-price auction in the longer term will help normalize the market, so you will be paying lower bids to reach the same cost per impression as you were with second-price auction. 

Why is Criteo moving to a first-price auction? 

Criteo is moving to a first-price auction for a few reasons. First and foremost, we want to encourage transparency in the way we are working with our clients and partners. The industry has made a great shift over the past year from second-price to first-price auctions. In fact, according to eMarketer, impressions that were sold through first-price auctions increased from just 5.8% to 43.% in just three months. First price brings a more transparent auction while enabling advertisers to achieve the win rates they need, at scale.  

Second, our move to first-price auction will enable you, as advertisers, to leverage our powerful machine-learning optimization models so you can achieve improved performance with less manual effort. In the coming months we will be rolling out new optimization models that function most efficiently when paired with a first-price auction. 

Finally, moving to first-price auction will enable the Criteo exchange to serve you better, with improved revenue predictability. As an advertiser, you will know exactly what you are going to be spending with each bid. 

How do I know how much I will be spending? 

With first-price auction, you will be spending the exact amount that you bid. As a guideline, when you are first making the switch from second-price auction to first-price auction, we recommend starting by lowering your bids by 20%, but we also recommend monitoring your campaigns closely to ensure you are achieving your reach objectives and have a pulse on how many advertisers are competing with you.  

How much will I spend if there is no competition? 

Unlike a second-price auction, where you will bid the retailer’s floor price if there is no competition in the auction, you will spend the exact amount you bid. This is important to keep in mind as we highly recommend you refrain from bidding a higher amount than you would like to spend, so you do not overspend. 

Upon request, the Criteo Analytics team can provide you with a daily Share of Impression report. This report can help you uncover if you have high or low competition, so you can devise a bidding strategy to help avoid overspending.  

What else can I do to avoid overspending? 

In order to avoid overspending, we recommend lowering your bid, and raising incrementally until you achieve the reach you are targeting or reach a ROAS floor for the campaign. We recommend monitoring your campaign (and the aforementioned Share of Impression reports) closely to see if you have lost reach, or if a competitor is outbidding you, and adjusting your bids higher as needed. 

How will first-price auction impact my performance? 

First-price auction will help improve your performance as long as you are monitoring your bids closely in the beginning. As Criteo moves to a machine-learning optimized performance model in 2019, your performance will improve; in the interim, you should leverage the guidance provided above to adapt your bid strategy and achieve similar performance results that you were generating through a second-price auction. 

If you have any further questions, please do not hesitate to reach out to your Criteo Strategist. 

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