Header Bidding: Threat or Savior?

HEADER BIDDING: WINNERS AND LOSERS
Header bidding is washing over the AdTech ecosystem faster than any other tech, leveling the playing field between pubs and exchanges. Need the basics? Read these primers from Digiday and Adprofs, or our recent blog, for a quick history.

Adoption rates among US publishers are incredibly high – reportedly at 70%+. Big numbers – who are the winners and losers?

WINNER — PUBLISHERS
Header bidding is exploding because publishers reason (often correctly) that they are getting screwed by the second price auction and the intermediaries who may be rigging the system. Via header bidding, publishers are able to bypass the waterfall of exchanges, which increases overall eCPMs, provides more control over inventory, and relegates exchange(s) – mostly AdX – to sell “remnant”.  

Though there is some disagreement on the stats, header bidding on guaranteed inventory has increased eCPMs by at least 20%. For non-guaranteed inventory, header bidding has seen a 50% increase.

There are two reasons for this, with equal weighting:

  1. Header bidding exposes ALL inventory to bidders, rather than restricting visibility to unsold/remnant/low priority — high-value inventory competes with guaranteed demand.
  2. Bids through the header are passed from DFP to AdX, creating floor pricing. This increases eCPMs for AdX-sold inventory.

LOSER – PRIMARY EXCHANGES
Exchanges are struggling to catch up as win rates decline through increased competition. One needs look no further than the recent stock price collapse of Rubicon, who reported that header bidding is the primary culprit in their recent earnings calls (and which resulted in hiring Michael Barrett, a consistently successful CEO with outstanding reputation of selling the companies he walks into.)

PubMatic was also late to the game, resulting in a lull – though they have recently joined the fray and are appearing to be gaining momentum.

AdX, the largest of the primaries, is certainly a short-term loser, at least. Due to the new floors header bidding has created, AdX is able to sell inventory at a higher price. However, the volume of quality inventory has dropped, with the best inventory being snatched-up quickly in the header bidding cycle.

Then there’s Google… who I would never count out. While their response is developing, header bidding is also threatening their core ad-server dominance. But, Google is encouraging publishers to explore competitive ad-servers that have built-in programmatic capabilities, as opposed to DFP, in which the exchanges are separate systems.  

AppNexus seems to have woken up with their open source solution, prebid.org, but it’s too early to be certain how they will factor long-term, although they are clearly gaining steam.

WINNER — SECONDARY EXCHANGES
Secondary and tertiary SSPs/Exchanges – traditionally the third, fourth, or fifth calls on the remnant inventory chain – were used to seeing inventory picked-over by AdX, AppNexus, Rubicon… Thanks to header bidding, these smaller SSPs and exchanges can offer the same inventory, at the same time, as the big exchanges, and compete on price and service. Now, it’s the biggest exchanges (with the noted exception of AppNexus) who are scrambling to catch up.

Certain other exchanges, in particular OpenX and Index Exchange, made big bets early on in the header bidding model. SOVRN has also fared well through this upheaval. SOVRN sees 100% of a given publisher’s inventory, and their volumes and eCPMs have increased. And yes, they also incur ‘listing fees’ for 100% of the inventory — but the top line is exploding.

WINNER — DSPs
While they encounter significantly higher listening costs to manage the huge volume of increased impressions, DSP’s now see all of a publisher’s inventory. This visibility includes the most valuable impressions, driving up CPMs and overall sales, even as win rates are lower due to the massive amount of visible inventory.

LOSER – NETWORKS
Networks have been in decline for many years – header bidding is not a single, fatal blow. What’s more: a number of networks are still competing successfully, both integrating inventory into exchanges and leveraging data.  

However, header bidding is going to ultimately subsume what is left of the network marketplace. Some will emerge stronger by managing header bidding solutions for smaller publishers, but those who are primarily aggregating inventory will likely be destroyed.  

THE BIG QUESTION
How will the emergence of server-to-server header bidding impact the adTech landscape?

Short term, it appears to not only help publishers, but also favor smaller exchanges.  

Server-to-server header bidding is, essentially, a publisher selecting one exchange and giving that exchange all of their inventory. The publisher is then not only seeing the “unsold,” but 100% of the inventory (like all header bidding). However by doing so publishers are opening themselves up to many of the same transparency problems of yesterday’s exchanges. Plus, cookie-syncing issues are emerging with server-to-server solutions (not to worry here – these issues will be fixed.)

The biggest publishers with the highest-quality inventory don’t need an exchange. Companies like Purch have already tackled this, and we are seeing the emergence of other companies stepping unto the breach to support publishers, deploying their own server-to-server solution.  

I suspect the biggest and best publishers, used to working with a healthy percentage of media spend, will migrate to a fully-transparent server-to-server model. This will force the exchanges to become more transparent, change their pricing, and provide different levels of service. Publishers will jointly create a cookie-syncing solution, and eventually attract the largest DSPs to bid directly – nary an exchange in sight.   

Exchanges will be forced to provide their services to the mid- and long-tail. While some may survive, many will fail. The exchanges who do survive will likely be those already focussed on the long tail (think: SOVRN) versus those competing for the comScore 200.  

I am left with the thought that perhaps the exchanges and SSPs will (ultimately) win — in the short term with all publishers, but in the long term, perhaps only with smaller publishers. There are many exchanges – some are focussed on a more vertical approach (think: mobile or video) and others on providing higher-quality service, trying to differentiate themselves in other ways. What’s more: The biggest exchanges have always been “display first,” and their business models will come under increased pressure as header bidding tech becomes more ubiquitous.

Plus, we cannot overlook the benefits of deploying one’s own solution, extending further into the market.

ONE STEP AT A TIME
Sure, header bidding doesn’t fix many of the other problems with the programmatic marketplace (fraud, walled gardens, viewability, effectiveness…) but this shift is returning some pricing power back to independent publishers.

That can only be good for the industry.

…WE’RE JUST GETTING STARTED
Industry Index is exploring server-to-server v. browser-based header bidding solutions at our upcoming Roundtable, with some of the smartest names in the field. Jonathon Shaevitz will moderate. Get your tickets here.

Content Roundup: Chicken nuggets, Google gets a cold shower, Rubicon’s FastLane

In case you missed it, here are our staff’s fav MadTech news picks from the last two weeks. Notice something new? #Hashtags! We want to know what you’ve been reading, and what we missed. Tell us on Twitter, Facebook… or button it up on LinkedIn.  

In case you missed it 2x, here’s our previous Roundup (#redundant).

 

 

News Corp & Unruly seeking to redefine programmatic through new private marketplacesThe Drum, Apr. 10, 2017
Media buyers can now buy inventory that matches a person’s mood…
#emerging #programmatic #partnership

How The NYT, CNN, and HuffPo approach publishing on platformsNieman Lab, Mar. 30, 2017
A study from Columbia University examines how social platforms have changed journalism.
#publishing #study #social

Rubicon Project Announces Early Successes from Video Header Bidding BetaYahoo Finance, Apr. 6, 2017
The Exchange announced the initial results experienced by publishers using its video header bidding product…
#beta #emerging #programmatic

Diana Ionel, Starcom Romania: “The cold shower for Google is a good thing…”iCEE.news, Mar. 30, 2017
“No matter how sophisticated targeting is right now, the association with quality content involves a judgment on that content…”
#content #international

The Kendall Jenner Pepsi Creative BriefMedium, Apr. 6, 2017
This parody brief for Pepsi’s massive tone-deafness is right on the nose… 
#blowingIt #pepsi

World record for retweets could be broken over some free chicken nuggets The Verge, Apr. 6, 2017
A social media win for Wendy’s. Are you in one of the 2.7 million retweets?
#NuggsForCarter

 

UPCOMING INDUSTRY EVENTS

April 19 – 20  /  Conversion Conference, Las Vegas, NV

April 23 – 26  /  Marketing Nation Summit, San Francisco, CA

April 25  /  Empire Startups FinTech Conference, New York, NY

April 26  /  Influencer Marketing Roundtable, New York, NY

 

(Join in! Tweet us or tell us on LinkedIn of some media that you think is worth sharing.)

Let Them Come…Consultancies Welcome!

It is hard to ignore the steady drumbeat of warnings that management consultants are coming to challenge agencies. Management consulting firms are often seen as the enemies of agencies – new market entrants that need to be stopped.  Many of them have already won, as Forbes illuminated in a recent article. “According to Ad Age, all the top 3, and 8 of the top-10 ad agencies are not those legacy names that might visit your home nightly with their TV commercials. Instead, they are consultancies like Deloitte, Accenture, KPMG and PwC.” Agencies seems to be responding in-kind, building up their consulting expertise.

This trend is driven by many factors, with two of the key drivers being:

  • Brands are increasingly spending more on MadTech, and technology has always been a core capability of management consultants;
  • Digital transformation is now often driven by customer engagement points (MadTech), and agencies have a long history of driving and managing customer engagement points for brands.  

The old three-martini lunch may have passed, but the agencies’ “trust me” attitude often remained, at least until recently. The ANA’s report on agency transparency, the P&G bombshell at the IAB Leadership conference, and recent cries from some YouTube advertisers speaks to the increasing volume of calls for change. The press points fingers at ‘AdTech’ companies, the programmatic nature of buying, fake news, fraud…

I think it’s something different.

Given all the background noise about transparency, agencies, AdTech companies and others have a vested interest in the ‘media’ pricing model, which hides all the dirty little secrets: fees and recharges with agency trading companies, the hidden costs of SSP’s and Exchanges, and the ‘price included’ fees of data targeting. These (and many other) MadTech fees are structured to be imbedded in the holy ‘media-based’ model.

This model is seriously broken. With many claiming the ‘AdTech tax’ is at least 45%—and some declaring it to be as high as 75%—everything is suspect. Brands are spending more on MadTech than ever before. They know they’re getting screwed, they’re just not sure how.

In march the consultants, with their decades of expertise in supply chain management, and a depth of expertise in getting technologies to work together, that few agencies can challenge.

Large consulting firms have spent decades, if not generations, tearing down supply chains to remove waste and friction, reassembling them for higher efficiency. The typical MadTech supply chain to deliver an impression is primed for the consulting axe:

  1. Data and Targeting
  2. Ad Serving
  3. SSP/Exchange fee
  4. Dynamic Creative
  5. Fraud/Verification/Viewability

    …Et cetera.

Each of these technologies, many of which are invaluable, are bundled by agencies into the ‘price of the media’ and distributed behind closed doors. Management consultants know how to play in this game. They are going to continue to gain market share, particularly against major agency holding companies, until the pricing model changes. And, by the way, it’s not that consulting firms come at a bargain, but they don’t hold the same vested interests that agencies do. They expose problems, are more transparent about their own pricing, and are ruthless in attacking the supply chain.

Management consultants will drive transparency in agency pricing models. However, while they are experts in supply chain management, they are not as good at recognizing how MadTech innovation can improve a brand’s performance, and are likely to pick only the largest tech suppliers as they strive for supply chain efficiency.

Let management consultants drive agencies toward embracing transparency. But technology companies, take note: To maintain an innovation-driven ecosystem, rather than to see a culling of the herd with only the largest companies surviving, will require new pricing models. The onus is on MadTech to create them, and to lead the way.

 

You Can’t Spell Exchange without Change

HEADER BIDDING IS LEVELING THE PLAYING FIELD BETWEEN PUBLISHERS AND EXCHANGES

Header Bidding – the new black, taking the market by storm, the must have, top of the trends.

So why is it such a threat?

Header bidding shifts the power dynamic away from the SSPs and exchanges, moving it back to the publishers. Publishers who manage their own header bidding have created what exchanges promised to create for the last five years: a highly competitive auction for a publisher’s inventory. Not only are publishers making more money with header bidding, they are gaining a bigger advantage, transparency of demand, and inventory control.  

Who is winning – and who is losing – thanks to header bidding? Why do I believe it ultimately spells the demise of many exchanges?

THE QUICK HISTORY:

  1. Digital advertising was born.
  2. Digital advertising was sold much like TV, print and radio, mostly on a guaranteed basis via phone calls, faxes and emails.
  3. Digital inventory exploded and “remnant” (unsold) was born.  
  4. Remnant was sold via networks, used for house ads, or went unsold.  
  5. Networks figured out how to create vertical networks and other aggregation methods, providing reach and contextual targeting to buyers.
  6. Networks started deploying audience targeting tools and were the first to really leverage data (with the exception of Google, who always knew how to leverage data).
  7. DMPs and other data companies emerged, created huge pools of profiled cookies.
  8. SSPs, Exchanges, and DSPs emerged to create the ability to “real time target and bid” on remnant inventory.
  9. DSPs leveraged the audience data to drive performance and the size of the RTB market exploded.
  10. Publishers were pushed to “be transparent” with their inventory and add higher quality inventory to what was sold programmatically, increasing eCPMs of exchange inventory, but not necessary the overall eCPM of publishers.
  11. Exchanges, and DSPs starting making some serious money (each taking about 15% of the spend) creating the so called “AdTech Tax.”  
  12. Meanwhile, companies like Criteo realized that being in the header gave them first look for all inventory (not just unsold), driving up eCPMs for publishers while cherry-picking inventory.
  13. Technology-learning publishers began to experiment with “header bidding,” often leveraging DFPs’ dynamic allocation tools.
  14. Open source header bidding wrappers and adapters became available and the market exploded.
  15. Header bidding began driving up CPMs for publishers, allowing them to capture top dollar for high-value inventory.

 

Header bidding is exploding because publishers reason (often correctly) that they are getting screwed by the second price auction and the intermediaries who seem to be rigging the system. With header bidding, publishers are able to bypass the the waterfall of exchanges, increase their overall eCPMs, gain more control of their inventory and only use their exchange(s) (mostly AdX) to sell what is truly now “remnant”.  

Why are the exchanges doomed? First, they’re not all screwed. Some were losing under the “exchange daisy chain market.”  They were the third, fourth, or fifth call on the chain and saw lousy inventory that had been picked over by AdX, AppNexus, Rubicon… Certain companies, in particular OpenX and Index Exchange, made early big bets on the header bidding model.  All of a sudden, they were seeing 100% of a given publisher’s inventory, and their volumes and eCPMs increased. (Yes, they also incurred a “listening fee” for 100% of the inventory, but top line exploded.) AppNexus jumped on the bandwagon a little later, with their open source solution, prebid.org. However Rubicon was late to the party, as was Pubmatic.  

Rubicon has reported header bidding as the primary culprit in their recent earnings calls. One need look no further than the recent stock price collapse of Rubicon. It has been blaming header bidding for its sinking performance for the last few quarters, but was overwhelmed with bad news with its recent reporting (which resulted in hiring Michael Barrett, a consistently successful CEO (successful at selling the companies he walks into).

Most importantly, publishers, particularly the comScore 150, were figuring out how this was all working, and began taking control of the process. Now everyone is talking about server-to-server integration for header bidding. This seems to overcome the real technology problems of header bidding by creating a single header bidding call and having someone else then manage the bidding process. Usually this “someone else” is the exchange. They have the technology infrastructure needed to manage the extraordinary volume created by this system.  

Server-to-server also creates a new problem related to cookie matching, but let’s assume this will get resolved over time. The biggest part of the challenge is exchanges’ unwillingness to cookie sync.  

Shenanigans, deception, and more of the same-old-same-old.  

While server-to-server integration clearly solves most of the problems associated with the speed and load times of header bidding, it leaves publishers exposed to different problems.  One traditional complaint of publishers regarding exchanges was that the actual fees charged by such intermediaries were less than transparent. Also, publishers suspected that, in some cases, exchanges were front running their inventory, creating additional spread within auctions, adding or subtracting data for their own benefit. Publishers felt cheated, but were not certain whether it was true.  

Over the last few years, as more bid stream data has become available, these suspicions have sometimes been confirmed. Certainly, some deceptive practices have been identified.  As with most things, transparency is the greatest disinfectant.  

The problem with header bidding managed by the exchange is that it opens the ecosystem back up to the suspicions of self dealing. In one instance recounted by multiple publishers, some exchanges seemed to win a disproportionate amount of inventory when they were the “wrapper” compared to when they were only an “adapter” inside someone else’s wrapper (i.e., when they manage the whole auction they win too much, compared to when they are just another bidder).

Simply put, server-to-server, at least as most people are discussing, is basically a publisher selecting one exchange and giving them all their inventory. Now they are not just seeing the “unsold,” but 100% of the inventory (like all header-bidding). However publishers are opening themselves up to many of the same transparency problems of yesterday’s exchanges.

Why is this a threat to the exchanges? Simple – the biggest publishers with the highest quality inventory don’t need to use an exchange. Companies like Purch have already tackled this themselves, and we are seeing the emergence of other companies stepping into the breach to either support publishers deploying their own server-to-server deployment, or creating new pricing models so they do not have an incentive to play with the auction.  

I suspect the biggest and best publishers will migrate to a fully-transparent server-to-server model, which will force the exchanges (who are used to working of a healthy percentage of the media spend) to become more transparent, change their pricing, and provide different levels of service. Publishers will jointly create a cookie-syncing solution, and eventually attract the largest DSPs to bid directly, and not through an exchange at all.  

Exchanges will be forced to provide their services to the mid- and long-tail. While some can survive, many will fail. The winners will likely be the exchanges already focussed on the long tail (think SOVRN) versus those competing for the comScore 150.  

There are many exchanges in the market, some focused on a more vertical approach (think mobile or video) and others providing higher-quality service and trying to differentiate in other ways. However, the biggest exchanges were and are “display first,” and their business models will come under increasing pressure as header bidding technologies become more ubiquitous, and as the expertise to deploy one’s own solution extends further into the market.

These trends don’t fix many of the other problems with the programmatic marketplace (fraud, walled gardens, viewability, effectiveness…) but this shift is going to return some of the pricing power back to independent publishers. That can only be good for the industry.