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) – mostlyAdX– 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:
- Header bidding exposes ALL inventory to bidders, rather than restricting visibility to unsold/remnant/low priority — high-value inventory competes with guaranteed demand.
- 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 appear bling 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.
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 byAdX, 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.