Advertisers push Big Tech to adopt standards for transparency in ad sales

These auctions determine which ads show up when someone opens a website, conducts a search, plays a video or scrolls through a social-media feed.

Eighty percent of all digital ad sales occur in “closed loop" auctions run by one major player, according to the Media Rating Council, the industry self-regulatory body that published the proposal last month for comments. Auction operators, including Alphabet’s Google, Instagram parent Meta Platforms and Amazon.com, decide how much to reveal about their processes to ad buyers.

Those that adopt the MRC standards, however, would agree to disclose key information such as the types of auctions they run, how they decide winners and what influences prices on their platforms, including any fees, discounts or bidding minimums. They would also pledge to disclose any significant changes.

“We’re trying to bring sunlight into the ecosystem," said Ben Hovaness, chief media officer at OMD Worldwide, an agency within ad giant Omnicom, who approached MRC nearly two years ago to begin developing the standards and chaired the steering committee.

The proposed disclosures matter to advertisers because the auctions don’t always go to the top bidder, and the ultimate price paid isn’t necessarily what the winner bid.

The winner in a so-called second-price auction, a format designed to encourage higher offers, pays a small amount more than the second-place bid. Most digital ads are sold through “modified" second-price auctions, in which bids can be just one factor in winning alongside such elements as relevance scores focused on the odds a consumer will buy an advertised product.

U.S. District Judge Amit P. Mehta wrote in a ruling last year that one of Google’s practices “artificially raises" the predicted click-through rate of runners-up in its auctions for text search ads, making the also-rans more competitive and “thereby creating upward pricing pressure."

Many auctioneers don’t disclose which type of auctions they run. That lack of transparency keeps advertisers and publishers from making informed decisions about which auction platforms they use and how, according to Hovaness.

It also opens the door for the platforms to manipulate the auctions, Hovaness said, for example by entering their own bids and driving up prices in the process. Or an auctioneer may lower its bid minimum in response to competitors, potentially undermining prices without the knowledge of the publishers providing the inventory.

Hovaness estimated that the impact on both buyers’ costs and sellers’ revenue over the years adds up to billions of dollars.

The standards wouldn’t require auctions to run in any particular way, and participation would be voluntary, though parties that agree to audits would be eligible for a new MRC accreditation.

Peeking under the hood

The proposal doesn’t mention any companies by name, but it comes as regulators have taken unprecedented interest in digital ad auctions.

A federal judge is overseeing court proceedings to determine remedies after ruling in April that Google had built an illegal monopoly around the technology that runs auctions for display ad inventory. And Mehta, the judge who ruled on Google search auctions, last month ordered the company to disclose any material changes to its procedures “to promote greater transparency in search text ads pricing and to prevent Google from increasing prices by secretly fine-tuning its ad auctions."

Google plans to file appeals in both cases, saying consumers and businesses choose its products because of their quality.

Organizers of the proposal, led by Omnicom and MRC with contributions from the major trade groups representing advertisers, agencies and companies involved in digital advertising, don’t plan to identify all the participants until it’s finalized. But working group members included Meta and Amazon, the second- and third-largest digital ad platforms, according to people familiar with the matter. Google, the largest, declined to participate, the people said.

Advertisers’ only real source of leverage with auction platforms has long been their ability to warn them, “ ‘I will give you less money,’ " said Katherine Freeley, who oversees U.S. ad planning and investment for German pharma giant Boehringer Ingelheim. They hope knowing the rules of the auctions will give them another tool: information.

Boehringer Ingelheim spends tens of millions of dollars with the largest digital ad platforms each year, said Freeley. If certain auctions adopt the standards and others don’t, the company may reconsider its spending with the holdouts, she said.

Some industry players say the proposal has flaws.

Any transparency would be an improvement because tech companies today “keep their auction mechanics completely hidden," said Kelly Abcarian, a former executive vice president of ad measurement at NBCUniversal and a veteran of measurement firm Nielsen.

But MRC can’t make anyone adopt the standards or do worse than pull accreditation from those that don’t live up to them, Abcarian said. And even auctioneers that disclose everything will remain free to design and implement auctions however they want, she added.

“Standards without mandatory adoption creates false confidence," said Abcarian. “We’d still be relying on the platforms to define their own rules, apply their own models and self-report their outcomes."

Big platforms may balk at the proposal’s suggestion that they task one or more employees with ensuring compliance, said Garrett Johnson, associate professor of marketing at the Boston University Questrom School of Business. The promise to announce any changes may also be a hard sell, he said.

“Once you start to disclose how you’re doing things, if you’re deviating from that, then it leaves you open to legal challenges," Johnson said.

Write to Patrick Coffee at patrick.coffee@wsj.com