Yandex.Direct Auction Change

Earlier today in Mosocw, Yandex announced a change to the Yandex.Direct auction system and new ranking rules for the ad block on the SERP.  Instead of a generalized second price auction, Yandex plans to switch to a VCG auction. The main rationale for the change is a desire to provide advertising clients with a more transparent bidding process.

Here is a breakdown of the changes and suggestions.

Current GSP Auction:

The current GSP (second-price auction) CPC model encourages advertisers to compete for positions in ads blocks. The second price auction frequently makes advertising on higher ad positions within the chosen ad block less economically attractive to Yandex clients.

Advertisers need to constantly adjust and consider their bids based on their competitor’s. Due to this structure, most of the well-practiced advertisers prefer to keep a lower bid for the third position in the premium ad block.

The third position in the premium ad block still provides a competitive amount of traffic but with a lower price for advertisers, making it both affordable and effective. While this tactic provides advertisers with lower costs and baseline clicks, advertisers miss out on additional traffic at positions one and two (up to 25%).

New VCG Auction:

In order to account for the cost difference between the different ad positions and still provide quality clicks and competitive traffic volumes for all ad positions, Yandex is introducing the new VCG auction.

An increase in position will not mean an increase in CPC overall but instead there is a cost for baseline clicks (dependent on traffic achieved in the third position) and then additional costs for clicks beyond the baseline clicks.

The cost for baseline clicks (as achieved in the first, second, and third position) will remain the same but advertisers will pay more for the additional clicks (first and second position). The rates for additional clicks achieved in the second position will be matched for both the advertisers in the first and second position. The remaining additional clicks in the first position (all additional clicks beyond the baseline clicks and additional clicks achieved in second position) will depend on the bid for the second position advertiser.

In short, here are the most important facts:

  • Position change doesn’t affect the cost of baseline clicks
  • The price of additional clicks is defined by the nearest competitor’s bid
  • The optimal bid is independent of competitors’ bids

New Relevance Ranking Formula:

At the same time, Yandex will also begin applying new relevance ranking formulas to paid search results, driving additional traffic to sites with higher quality advertising messages. This methodology has already proved effective in Yandex organic search results and will also work similarly with paid search results.

Benefits:

VCG auction rewards upward bidding by only charging premiums for incremental clicks that an advertiser receives. Thus, competing for extra traffic is more economically attractive for Yandex advertisers.

As a result, Yandex expects to see growth in the number of paid clicks on search pages, increase in advertising coverage and a reduction in the average cost-per-click. All of these changes will drive incremental value to Yandex advertising clients.

Due to the overall significant decrease in the CPC from the new auction format, Yandex will no longer be offering discounts to advertisers.

Suggestions:

The changes will be rolled out at the end of August 2015, so current clients have a bit of time to make adjustments to their Yandex.Direct bidding.

Before learning the differences with the new system, advertisers may opt to enable automatic bidding strategies such as Average CPC or Average CPA.

Results data from the new auction will be available in the Yandex.Direct API.  Additional methods for bidding and pulling the CPC will also be supported in the Yandex.Direct API. Detailed instructions that were published today in the API documentation provide more suggestions for this process.