How does Header Bidding Impact Demand Side Platforms (DSPs) & Trading Desks?

by | May 21, 2018 | 0 comments

How Header Bidding Impacts DSPs

At the end of the day, the ones most effected by Header Bidding implementation are the Demand Side Platforms. The instantaneous auction the Demand Side Platform (DSP) responds to happens when the exchange makes the ad available while the user is loading the webpage.

This is the definition of Real-Time bidding and the technology driving Programmatic advertising. Before header bidding, the SSP would only auction the ad when their slot was called in the publisher waterfall. Now, each time the page is loaded, the SSP makes the ad available for auction, even if it rarely is responsible for selling the ad unit.

DSPs must ‘listen’ or ingest the ad calls from billions of web pages a day. With the advent of header bidding, now DSPs see 3x – 5x the amount of traffic they saw previously. This is an increased load on the need for servers to respond to all these available ad units. Many of the smaller DSPs are having a difficult time keeping up and, in the end, they are not able to see as many available ad spaces as the used to see.

For prospecting campaigns, or video campaigns, this is not a big deal. DSPs can still pick off the ads they want to target and typically get performance similar to what they saw before header bidding. But for remarketing campaigns, which are the money-makers in this business, these smaller DSPs are having a hard time ‘listening’ to enough inventory to compete with the larger-scaled DSPs on remarketing campaigns.

Another, buyer-be-ware change with the increased use of header bidding is the introduction of ‘First-Price Auctions’. Typically, an SSP would see all the DSP bids, award the ad space to the highest bidder, but charge them the PRICE OF THE SECOND HIGHEST BID. This was done to increase competition and buyer’s interest in this technology as it first appeared.

As a buyer this statement made this landscape very intriguing (although, still extremely complicated):

You will NEVER pay more than the second highest bidder is willing to pay for each individual ad space.

It was in the interest of developing a perfect market. Well, things don’t always work out like that…

Now, with the need for the exchanges to push the highest price to DFP through the header auction, they are now passing the price they receive directly from the DSP to the publisher. This is a ‘first priced auction’. Or, if as the exchange would justify “we are taking the highest bid we saw to increase the publishers CPM”. This is not a bad thing. It does question why we have the SSP layer at all. But, ignoring that statement, this is ultimately going to drive better pricing for the publisher who must exist for us to have the ad tech ecosystem at all!

But, with the increase in first price auctions, DSPs must now build into their technology the ability to identify first-priced auctions versus second price auctions and enable the buyer to correct their bid strategy to avoid getting hurt by this change in auction mechanics.

 

What does this mean for a Trading Desk?

Well, to be honest, not much. If anything, it is a positive change in the ecosystem. Most trading desk practices license technology from the largest DSPs in the world who have no problem seeing all available bids, even with the increase in header-bidding auctions. Any reputable trading desk, would already have implemented advanced bidding algorithms to drive the strongest cost per acquisition. Whether or not they pass those savings onto their client is a whole other story, hence the shift for a more transparent partner like ProgMechs. In the end, not much changes with this introduction except that publishers are able to make more money through programmatic channels. With that, more publishers make more inventory available, allowing Trading Desks to see more inventory, increase performance, and continue to offer stronger, more ‘high-impact’ style ad units.

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