As with offline auctions, all companies place a bid for an advertising space. This means, that each company would indicate the price they would pay for an advertising space and then compete against other companies for that position. Which advertisement wins the bid depends on the following three factors:
- The amount of the bid of the advertiser
- The probability that the ad would lead to the advertiser’s desired result – this takes the selected campaign into account
- The quality of the ad and its relevance to the target group
This means that it is not only the bid size that matters but also the relevance of the ad itself and how it matches the advertising space in question.
Example:
Four advertisers compete for an advertising position on a fitness coach’s social media channel and each place different bids. This fitness coach specializes in explaining to their users which exercises are best done on which home fitness device and how to make their training even more efficient.
- Advertiser, cosmetic brand – $0.13 per click
- Advertiser, sportswear – $0.08 per click
- Advertiser, sport nutrition – $0.11 per click
- Advertiser, sports equipment – $0.07 per click
The highest bid will be rejected because it does not match the content of the fitness coach’s social media channel. The advertiser probably used an unsuitable category when creating the ad.
The second bid will be shortlisted because it relates to the fitness coach’s content. This can be seen in their selection of sportswear pins and also the sportswear brands they offer are recognizable.
The third bid will probably be rejected if there has been no mention of sport nutrition on the fitness coach’s social media channel.
The fourth bid directly relates to the fitness coach’s content as every pin features sports equipment. The probability that a user will click on the pin is very high. This means that the fourth advertiser has a good chance of winning the bid, despite the fact that they are not the highest bidder. However, it is also possible that the second and even the third bidder could win the ad space since their content is relevant and they are offering significantly more money than the fourth advertiser. The highest bidder, on the other hand, would lose the auction as their content is not thematically suitable.