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Love this product idea and huge congrats!!! The idea of being able to project the unofficial market of search engine results (SEO/SEM on Google), and explicitl

Love this product idea and huge congrats!!! 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!

andrewyates2020 5y ago
GSP! Generalized Second-Price Auction. It's a method of ad pricing famously used by Google where bids are sorted in a list and each winner pays the bid of the next highest bid. This is easy to implement, and for one slot and one auction, it's an "optimal" VCG auction. 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.
- erehweb 5y ago
  What do you think about platforms moving to first price auctions? Do you think we'll start to see more of that?
  - andrewyates2020 5y ago
    We already see some of this. I like the admission that there is no magic happening with GSP but I don't think FPA will work for most cases: 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.
    - disgruntledphd2 5y ago
      FPA is the devil, I'm pretty sure that the only reason Google implemented it is that they needed to juice their revenue numbers. 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).
      - andrewyates2020 5y ago
        Gsp does NOT have this dominant strategy property! People think it does which ironically makes it much better at “extracting value.” non repeated second price auction has this property. Gsp will almost always overprice just like fpa except in very unrealistic situations
        disgruntledphd2 5y ago
        So, in a FPA I bid $1. I win, and pay $1. 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.
        andrewyates2020 5y ago
        In FPA, you need to strategically lower your bid to get "margin." In GSP, that's also true. I have some details here: https://medium.com/promoted/when-goog-fb-is-bad-for-your-performance-ads-business-part-2-8831cdc1b84b https://medium.com/promoted/when-goog-fb-is-bad-for-your-per...
- disgruntledphd2 5y ago
  > Useful economic properties depend on non-repeated, "stable" auctions of 1D ordered lists, which doesn't describe most modern media. 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.
andrewyates2020 5y ago
Re "Decentralized adwords": Yes. 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.

andrewyates2020 5y ago

GSP! Generalized Second-Price Auction. It's a method of ad pricing famously used by Google where bids are sorted in a list and each winner pays the bid of the next highest bid. This is easy to implement, and for one slot and one auction, it's an "optimal" VCG auction. 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.

erehweb 5y ago
What do you think about platforms moving to first price auctions? Do you think we'll start to see more of that?
- andrewyates2020 5y ago
  We already see some of this. I like the admission that there is no magic happening with GSP but I don't think FPA will work for most cases: 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.
  - disgruntledphd2 5y ago
    FPA is the devil, I'm pretty sure that the only reason Google implemented it is that they needed to juice their revenue numbers. 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).
    - andrewyates2020 5y ago
      Gsp does NOT have this dominant strategy property! People think it does which ironically makes it much better at “extracting value.” non repeated second price auction has this property. Gsp will almost always overprice just like fpa except in very unrealistic situations
      - disgruntledphd2 5y ago
        So, in a FPA I bid $1. I win, and pay $1. 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.
        andrewyates2020 5y ago
        In FPA, you need to strategically lower your bid to get "margin." In GSP, that's also true. I have some details here: https://medium.com/promoted/when-goog-fb-is-bad-for-your-performance-ads-business-part-2-8831cdc1b84b https://medium.com/promoted/when-goog-fb-is-bad-for-your-per...
disgruntledphd2 5y ago
> Useful economic properties depend on non-repeated, "stable" auctions of 1D ordered lists, which doesn't describe most modern media. 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.

andrewyates2020 5y ago

Re "Decentralized adwords": Yes. 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.