Online advertising has moved the upstream and downstream, forming an industrial chain, involving tens of billions of resources. It adheres to the core of auction, continues to evolve in the development of modern technology, and finally grows into a generation of master in the auction industry.

With the rapid development of the Internet, the market scale of online advertising has increased rapidly, which has become one of the mainstream cashing modes of the Internet, and also spawned a number of advertising giants, such as foreign Google and Facebook, domestic byte skipping, Ali, Baidu and Tencent. Advertising plays an important role in the whole business.

The operation form of online advertising is relatively complex, especially in the stage of real-time bidding (RTB), which not only relies on Internet technology and big data, but also involves advertisers, agents, DSP, ADX, SSP, DMP, media, users and many other participants, which is one side of the modernization of Online advertising. However, when we extract these specific forms, we will find that the content of online advertising Nuclear can be traced back to a long history of a kind of behavior – auction.

Speaking of the auction scene in everyone’s mind: the host shouts “one million in case, one million twice, one million three times, and a deal”. This is a form of public auction. There are multiple forms and mechanisms of auction. Let’s talk about it.

In terms of auction items, auction items have been used to sell all kinds of items in ancient times: jewelry, famous paintings, antiques, and things sold by online advertising are more special than those sold by predecessors in form: exposure, the purpose of bidders (here can be specified as advertisers) participating in the auction is to get exposure and show their products in front of the audience.

In terms of form, the common auction forms mainly include the following four categories:

British auction: the auctioneer offers a lower price, at least two bidders participate in the bidding, and the price rises all the way until the remaining one is interested;

Dutch auction: on the contrary of British auction, it is an open price reduction auction process. The auctioneer offers a very high price and the price drops all the way until a bidder is interested;

First price sealed auction: as the name indicates, bidders submit their bids in sealed form, the highest bidder wins the auction, and the winner pays his own price;

Sealed auction of the second price: the bidder submits the quotation in sealed form, and the one with the highest quotation wins the auction. Unlike the payment price of sealed auction of the first price, the winner of sealed auction of the second price pays the second highest quotation.

From the above description, we can deduce that the main mechanism of auction includes two aspects: allocation rules and payment rules.

Allocation rules determine how auctions are allocated. The rules can be first come, first served, randomly selected, high priced, and last served, depending on the mood of the auctioneer;

The payment rules determine how bidders pay for their fees. The rules can be to pay the highest price (FP), the second highest price (SP), and the loss caused to others due to their own participation (VCG).

In the development process of online advertising, from contract advertising to competitive advertising, the rules are also developing:

Contract advertisement: the advertiser comes first, gets first, agrees in advance in the platform, arranges the time to put, pays the agreed price.

Competitive advertising: the allocation rule is adjusted to get by the high bidder. The meaning of the high bidder has undergone some development and changes. At the beginning, the high bidder is the highest bidder. Later, Google introduced the click rate into the bidding formula and developed the ECPM bidding ranking:


It’s a bid for a click.

It refers to the estimated click through rate of the advertisement.

If the current development of hot ocpx mode (target conversion bidding) is followed, the calculation of ECPM needs to increase the prediction of conversion rate on the basis of click rate, which requires higher requirements for big data and algorithm. If the platform is designed according to the model of the optimal mechanism, the bid participating in ECPM calculation is the virtual evaluation after fitting the distribution function of advertiser’s evaluation, the calculation will be more complex, of course, the income will be more considerable.

At present, the mainstream form of payment rules is generalized bivalent: according to the second highest ECPM, the payment fees of the winner are reversely promoted. There are also generalized univalent and VCG forms, each with advantages and disadvantages. In short, the generalized one price is more stable (Nash equilibrium with incomplete information) than the one price. VCG belongs to incentive compatibility, encourages telling the truth, but the calculation cost is higher. We will talk about mechanism design, dynamic base price and squeeze factor of bidding in the following articles.

When online advertising develops to the stage of real-time bidding, every exposure is the result of bidding. That is to say, every advertising display we see goes through the process of request inquiry bid bidding winning distribution. The daily advertising exposure is in the billions. For the response speed (from request to final display, it needs to be controlled within hundreds of milliseconds), the high concurrent performance requirements are very high.

Not only that, it also needs to use big data to predict the click rate and conversion rate, and realize billing, anti cheating, etc. compared with traditional auction, it is more complex and has higher technical content.

Online advertising has moved the upstream and downstream, forming an industrial chain, involving tens of billions of resources. It adheres to the core of auction, continues to evolve in the development of modern technology, and finally grows into a generation of master in the auction industry.


This article was originally published by @ Murphy and is the original author. No reprint without permission

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