Soon, There Will Be Fewer Seats At RTB Table

by , Dec 6, 2012, 12:49 PM
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Whenever I spend time with our friends working at SSPs or ad exchanges, I’m reminded of something: The cost to serve in RTB is a very big deal, and not very well understood.

There’s no question that RTB is the most efficient way to monetize inventory and the wave of the future for publishers. But consider the difference between ad buying five years ago vs. today’s RTB-centric world.

Five years ago, if you wanted to serve an ad, you sent a request to an ad server, that ad server sent back an ad, and that was pretty much it.

Today, RTB auctions involve dozens -- potentially hundreds -- of bidders, and circumstances are a bit different.

Think of it this way: When an SSP sends out an ad request for a single impression, it tries to get as many buyers to bid on that impression as possible. The SSP is effectively saying to 40, 50, or even 100 different bidders, “Would you like to bid on this impression?” The fact that there are 100 advertisers bidding on every single impression makes for a very hectic process, and could potentially be expensive for the SSP.

Additionally, consider that the SSP has probably run this auction a trillion times previously. So the SSP and the publisher have a pretty good idea of who’s capable of bidding with a high CPM, and who’s not.

Let’s say the SSP takes the first six bids -- and by the sixth one, it’s already been offered a super-attractive $40 CPM bid. Is it prudent to then make those 94 extra calls? Maybe. Depends if the SSP thinks there’s a better bid out there.

Whether an SSP allows bids from 10 bidders, or 50, or 100, will start to play out pretty soon. There’s a tipping point where it no longer becomes worth it to include other bidders, and it will be interesting to see when we reach it in our ecosystem. Beginning to limit the number of bidders is in the SSPs’ and exchanges’ best financial interests, and that’s why it’s going to happen.

Of course, this isn’t something that publishers like to talk about. After all, why not keep the competition up, especially when SSPs are fighting to get all the demand they can?  But over time, markets get more and more efficient, and this means that an exchange is eventually going to say, “Oh, here’s a tiny little ad network that built a mediocre bidder and wins .00000001% of the time. We’re not going to send them every request.”

The catalyst for this shift: the cost to serve for the publisher side and the cost to bid for advertisers (in a rapidly growing world of QPS). We’ll soon be at the point where if a bidder doesn’t win often enough, that bidder won’t get access to all of the Web’s advertising activity. It just doesn’t make economic sense. 

Exchanges can create a membership fee or enact eavesdropping fees, which essentially discriminate against small players, and force a minimum win rate. This, in and of itself, will force consolidation. As technology becomes more sophisticated, and the different players in our ecosystem continue enhancing their products, the window will slowly close on those who are able to jump into auctions.

In other words, “Will the real DSPs please stand up?”

The available impressions per second, or QPS, in our ecosystem will very soon surpass one million -- and by very soon, I mean weeks or months. When this level of inventory is available to the masses of DSPs, it becomes harder and harder to scale, and more expensive to look at every single impression

And as the ecosystem grows, it will force more people to use more robust platforms. Either you adapt and grow rapidly, or you get out of the market.

I often compare the digital ad ecosystem to the New York Stock Exchange. And if you look at the NYSE, there’s only so much room on the trading floor. That’s the same for the future of RTB.  There is room for all the demand, of course, but it will consolidate through a limited number of buying platforms. There is only so much room at the table. 

 

 

 

 

5 comments on "Soon, There Will Be Fewer Seats At RTB Table".

  1. lewis rothkopf from collective, inc.
    commented on: December 6, 2012 at 1:44 p.m.
    Good points Jeff. There is a hard cost to supporting bids (and making them) and Darwin will, as always, win out here.
  2. David Skinner from [x+1]
    commented on: December 6, 2012 at 1:53 p.m.
    I agree with the conclusion, that costs will drive consolidation in the industry, but I see it happening from the demand side rather than the supply side. Its not a super expensive transaction to field a bid request, so I don't see publishers limiting their # of bids they allow. But it is becoming an increasingly expensive proposition to maintain a competitive DSP. RTB integrations, 3rd party data integrations, ad safety integrations, ..., all add up. I compare it to starting an airline - building a single plane airline 100 years ago did not have a lot of overhead, buy a plane and fly it. But today there is so much overhead baked into the industry that it's almost impossible to launch a successful airline. Currently, it's relatively low cost to build a DSP: rent a bidder and you're off to the races. But that is changing rapidly, and I see this cost burden on the demand side closing out the smaller players over time.
  3. Francine Hardaway from ZEDO
    commented on: December 6, 2012 at 2:33 p.m.
    We are actually a platform provider on both sides: we have premium publishers and agency holding companies using our products and platform. For the precise reasons you are talking about, we have chosen to take this route.We actually have what we're calling a "direct pipe" from agencies and holding companies to our premium publishers.
  4. Domenico Tassone from Viewthrough Measurement Consortium
    commented on: December 8, 2012 at 9:51 a.m.
    Fascinating - thanks for sharing this.
  5. Christina Park from Triggit
    commented on: December 8, 2012 at 11:52 a.m.
    Just because you have wheels doesn't mean you can race in the Indy500. Most exchanges (including Facebook) allow just about anyone in, but it's the job of the marketer to do their due diligence to really know which of their partners are true, sophisticated DSPs. They should be asking themselves: "Am I working with a data partner that makes micro decisions? Can they offer advanced features like dynamic creatives and custom ad creatives? Can they optimize for different factors like page type, frequency capping, and recency?" It's true that anyone can make a bidder - but not everyone can give you the type of bidding automation you need to buy more efficiently at a larger scale.

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