The Facebook ad auction create value for the advertisers and the best consumer experience. The more relevant an ad will be to a person, the less it will cost advertisers to show them to that position. Let’s take an example of explaining the process.
Ad Auction Process and Example
Sally is a 25-year-old woman who lives in Washington. The first thing that she does each morning is open Facebook. Thousands of advertisers are there who want to show their ads to people like Sally.
Facebook holds an auction where it takes into account each of these advertisers bids to serve an ad impression to a person like Sally. Facebook also look for how interesting and relevant it think Sally will find each of these advertisers ads, and how likely she would be taking action like clicking or making a purchase.
Facebook determines which advertiser will win the auction, based on these determinations.
Finally, Facebook shows the winning ad in Sally’s News Feed.
This process continues when each time a person on Facebook sees an ad.
Facebook Ad Auction vs. Other Auctions
Facebook ad auction works on the VCG model called as Vickrey-Clarke-Groves model. It is an incentive-compatible auction, that means if the advertisers bid their true value, then it can help to maximize their ROI. A Bid is a maximum amount they end up paying for the outcome. The auction uses their bid to optimize the ad for that specific outcome.
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