The mysticism around GSP (generalized second-price auction) for ads is absurd. In twenty years, for “p(click)*bid”, the p(click) factor has advanced from a simple ratio to huge neural networks. But bids? “Sort and take the second price.” "Somebody once won a Nobel Prize." Long story short, GSP doesn't have many useful properties in practice except that it's easy to implement and compute and it's a "standard."
Major problems with GSP are: 1) Useful economic properties depend on non-repeated, "stable" auctions of 1D ordered lists, which doesn't describe most modern media. 2) GSP gets mixed with a "complementary bid" to control for user quality, which also complicates any theoretical properties 3) It's still complicated to understand and requires layers of control systems.
We originally started as “Algorithmic Auctions” to solve ad auctions fairly, but we didn't find a market for this.
Yeah, as I think we've discussed before, GSP is a lovely economic model that doesn't have much applicability to the real world.
It's a great thing to explain to clients though, and it makes it look like the platform is not overcharging them, which is probably why people still keep using it.
1) GSP doesn't promise any specific price. FPA promises "the price you bid." If that's not what people are paying by simple math, it will be confusing. That hurts trust. This could happen if you have a user quality control system that penalizes poor quality. GSP gives you a second control (price) in combination with delivery volume and placement to manage user experience.
2) People expect GSP. Claiming FPA is an admission that you need to build an autobidder system versus letting people discover this for themselves.
Like, the trouble with FPA is that it extracts "too much" money from the bidder, as they pay their marginal cost. GSP (second price more generally) does have the nice property that you'll always pay less than your maximum bid, which is the margin (assuming you're bidding your maximum profitable LTV).
Also, congratulations Andrew, I'm sure you guys are gonna do incredibly well (and if you have problems in this space, I strongly recommend giving promoted.ai a look).
In a GSP, I bid $1. I'll pay the second price (not really but for purposes of clarity assume it) which was $0.90.
In this case, I always (almost) pay less than my maximum bid, which allows for margin given to me (assuming true value and a bunch of other unrealistic things) rather than in the FPA, where I pay $1, assuming my bid is highest.
I'm not talking in incentive-compatibility terms, rather in terms of where the "margin" goes.
https://medium.com/promoted/when-goog-fb-is-bad-for-your-per...
Today, how much of your attention is spent between how many apps? I bet that the sum useful attention across many different apps exceeds attention on Facebook. But why does Facebook dominate performance marketing? How can these apps and their users find each other in a better way without aggregating into a centralized Big Tech company?
We're passionate about finding the answer to that. It has to start with making individual marketplaces run better by deeply understanding them.
The idea of being able to project the unofficial market of search engine results (SEO/SEM on Google), and explicitly allowing marketplaces to actually commodify the search result space is fascinating.
Tell us about GSP!