How are Prices Set in an Auction? Determining CPMs in an In-App Ad Auction [VIDEO]

Posted on September 19, 2018
By Matt Kaplan, Content StrategistContent Strategist

WATCH VIDEO

It’s now well known that app publishers can maximize their revenue through in-app advertising, but some of the mechanics behind the scenes within an in-app ad auction are not always well known about among the app developer community. Technologies like in-app header bidding and real-time bidding are involved, sure, but many app publishers often have questions about the specifics.

In particular, one question we often here a lot concerns the price of in-app ads and how pricing within in-app bidding really works.

  • When ad networks are called, how much is determined by historical average versus a real-time assessment showing the ad network willing to pay more to reach a specific audience network in their auctions?
  • Do high value advertisers ever pay more for high quality ad inventory?
  • Do advertisers ever change their historical average CPMs? What about among the highest bidders?
  • How do publishers access to establish an impartial and open auction over their ad inventory?
  • What can be done to enable app publishers and developers to establish an impartial and open auction over every ad impression?
  • How do you make sure an auction never overlooks a network? How do publishers ensure access to high quality ad demand?
  • Ultimate, how are prices set in an auction? How do app publishers get to the root of the issue?

To begin to answer these questions, be sure to check out our latest Whiteboard Wednesday video:

Prefer to read instead of watch? Be sure to check out the full transcript for this whiteboard video below.

Video Transcript:

Welcome to another Whiteboard Wednesday. My name is Andrew Gerhart. I’m the VP of Publisher Platforms for InMobi.

Today we’re going to address a common question that we get, which is: for my mediation, how do CPMs get into the auction? There’s a few different ways. Let’s take a look.

So when the app makes a call to the InMobi ad server, we’re going to look at the CPMs from each of the different ad networks that you’re working with. How do they get in there? Well, there’s three different ways.

The first way is a stated CPM. That’s where you’re entering a flat CPM into the system for that particular ad network. Let’s say it’s $6.

The second way is when the ad network offers API reporting. And so we’re able to connect our system to their system. Now, that’s going to be dynamic, and so sometimes we’ll pull that daily. Sometimes we’ll pull that hourly, based on the parameters and the limitations of that particular ad network.

The third way that we can get the CPM from an ad network or exchange is through a dynamic bid. And so that’s the third - and preferred - method for pulling CPMs from an ad network.

Let’s take a look at what that means daily. So let’s say that for user A, if it’s a stated CPM on day one, it’s going to be $6 across the board for every user. So that means if there’s an auction that runs - I have five different auctions - each one is going to be $6.

Now, let’s take a look at that for the API reporting. So, we’re going to be pulling back the actual revenue, the actual CPM that you’re generating from that ad network. So instead of being a stated CPM, maybe for day one it’s $7.76. But, that same number is going to be used across all those different auctions. And so, we have to drag that down, across. So what we see here is that ad network that uses API reporting has a chance to be more competitive because we can get more accurate data about the revenue and the performance.

Let’s look at the dynamic bidding. So we have day one of dynamic bids. What we see here is that because they’re passing back dynamic price for each individual auction, price can change. And so maybe they don’t value user A and they only want to bid $4.75. But, there’s something about user B that they really like, so now they’re going to bid $30. They really want to win that impression. User C, well, there’s somewhere in the middle. User D, they really like that impression. And then same with User E. So you can see here there’s able to send back accurate pricing, they’re more competitive within the auction and the publisher is able to capture more yield.

Let’s look at how that influences on day two. So day two, because this is still a stated CPM, unless the publisher has changed the pricing in the platform, we still have to use $6 across all those auctions.

Now, if we’re using API reporting for an ad network, that price will have changed. So maybe they perform better, and the average CPM for that ad network has gone up. Now that’s going to be, let’s call it $8.25. But again, we have to use that number across all of the different auctions. So, we see that we can get more accurate with API reporting, we pull that back in, the CPM can go up or down.

The third one, the one with dynamic bids, we have the same thing where they can bid for each individual impression, and so maybe they want to win more for User A. They still like User B, so they’re bidding $30.

So that’s how CPMs get influence into the auction. We have three different types: we have stated CPMs, we have API reporting, which most ad networks support, and we have the dynamic bids, which is really where the market is evolving towards and which gives the publishers more accurate data, accurate reporting and allows them to capture more yield from their auction.

Thank you for your time. This has been another Whiteboard Wednesday. We look forward to seeing you again.