As the number of brands bidding on online display inventory in the rapidly expanding RTB marketplace grows, some questionable business practices are beginning to emerge that are at the
very least illogical, and quite possibly undermining the very reasons brands -- and even publishers -- participate in the market in the first place. And while the ad technology industry likes to
compare it to Wall Street’s hyper-efficient trading markets, some of the business rules governing the way Madison Avenue’s programmatic marketplace work evolved in ways that increasingly
seem idiosyncratic, capricious, and even counterproductive.
One of the worst of them -- the so-called “single-bid” function -- has come to light as some of the biggest trading platforms begin to observe a peculiar behavior occurring when DSPs (demand-side platforms) begin bidding on the same inventory on behalf of an increasing number of competing brands, effectively nullifying the relative demand of each of them. The effect could be costing individual brands crucial “wins” of the inventory they covet the most, and could also be costing publishers who participate in the RTB marketplace the kind of upward pricing pressure that occurs from truly efficient supply and demand.
“I don’t want to make it seem like anyone is doing anything bad on purpose,” says Frank Addante, the founder and CEO of one of the biggest trading platforms, Rubicon Project. “It’s just how the business is evolving.”
Addante, who is one of a number of industry players who has begun to detect and question these arcane business rules, says they likely occurred from the staggered way the RTB marketplace evolved; the fact that it has been a progression of retrofits, as opposed to a planned-out process; and the fact that unlike Wall Street’s open and regulated markets, no governing entity oversees their development. They just happen.
That seems to be the case with the single-bid function, which basically means that a DSP issues only one bid for a user impression being auctioned, regardless of how many clients it has bidding for it internally. Because brands often round the price they are willing to pay for the impression, the result is that multiple brands effectively end up bidding the same price for the same inventory in an auction where the win can only go to one.
Addante says it’s not even clear how DSPs determine how the winning bids are allocated among a DSP's clients in that situation. And while he believes it is likely random, and therefore neutral, it still has the effect of nullifying the relative demand among the brands in each DSP competing for the impression, and keeping potential price pressure down.
There are similar odd business rules in the RTB marketplace’s infrastructure, like the so-called “second price” function, which means that regardless of how high a price the most aggressive bidder offers, they will only pay 0.01 cents more than the second-most aggressive price bidded. While that rule also would seem to dampen upward pricing pressure that could lead to higher yields for publishers, most observers say it is at least grounded in sense, because the idea behind it is that it was established to build demand from advertisers who might otherwise be afraid they would overpay in an auction-based media marketplace. The single-bid function makes almost no sense, says Addante, who speculates that it emerged when DSPs were serving only a few brands bidding on the same inventory at the same time, and therefore no bidding conflicts were apparent.
The most likely reason for it, he says, is that it helps the DSPs manage their costs -- because creating the technological infrastructure necessary to manage individual bids for each and every client bidding on all of the billions of impressions available simultaneously in the real-time marketplace would be prohibitive, if not impossible, for many DSPs to manage.
Addante says it’s even possible that many of the DSPs, and their brand and agency trading desk clients, aren’t even aware of this conflict because they don’t have access to the data and the optics necessary to see the way the RTB market functions in its broadest sense. He says Rubicon only began to observe it recently, because it is managing so many bids from so many DSPs now. It recently passed a significant milestone, certifying its 100th DSP on Rubicon’s systems. But the real problem, he says, is not the number of DSPs participating in the marketplace, but the fact that so many DSPs are managing so many clients’ bids via the multi-bid process.
“There’s a solution for this,” he notes, adding: “The solution is that every single individual advertiser submits their own individual bid. But that’s very expensive for a DSP to manage.”
On that note, Online Media Daily asked Addante to check whether any DSPs currently are utilizing such an approach, and after investigating the matter with Rubicon’s technology team, he said they believe only one -- MediaMath -- is utilizing it to some extent.
“No one provides complete order-book visibility like that,” explained Rubicon’s Chief Scientist Neal Richter. “The closest is MediaMath at up to 10 bids per impression. That said, there’s a diminishing return after three or so open market bids per impression are sent back in terms of 'liquidity,' but far more data-gathering for bid landscapes analysis. Multi-bidding is required for DealID bids and the programmatic guaranteed trading build using the DealID to work effectively."
could be that the DSPs are beginning to recognize this problem and are taking their own steps to resolve it. Richter noted that at least one other major player, AppNexus, is preparing to roll out
multi-bidding -- and he noted that “a couple of smaller DSPs do full multi-bidding well,” but he did not disclose them.
"We worked with 10+ DSPs on a review of their bidding logic around DealID bidding and jointly produced an updated protocol spec submitted to the OpenRTB standards body, Richter explained, adding, "That spec also contains a set of bidding logic best practices such that the needs of open market and DealID bidding are combined."
Rubicon’s Addante says those developments are a healthy sign for the RTB marketplace, and that it indicates the marketplace is beginning to mature, and that if more players adapt it will be good for the entire industry, creating a truly open and efficient marketplace based on the underlying demand advertisers have for publishers’ inventories.“if every advertiser was able to bid on every impression that would be greater service for both the advertiser and the publisher, because then they would both have visible insights to a fully transparent auction.”