Fast-moving industries like digital advertising require companies to be flexible in what they do, adapting to changes in the industry like new practices or emerging technologies which shake up the ecosystem.
Header bidding has transformed digital advertising to the point where many companies have had to completely transform their business practices and technology stacks in order to adapt. The rise of header bidding has particularly affected the role played by supply-side platforms (SSP). In principle, header bidding has a similar aim to the SSPs i.e. it’s a means of connecting publishers with a fragmented list of demand sources as efficiently as possible. But it has gone a step further and is allowing multiple SSPs to compete against a publisher’s direct deals.
So how have SSPs been adapting to their new role?
Competing on New Turf
Header bidding had provided an alternative to the “waterfall structure”. Under the waterfall structure, a publisher would have a ranking of various demand sources (mainly SSPs and ad exchanges, as directly sold inventory was set aside separately), and bids would be offered to these sources based on this ranking. If the highest ranked source didn’t fill the bid request, it would be offered to the next source, and so on.
While SSPs aimed to achieve the highest bid possible from their own demand sources, this did not always deliver the highest overall bid, so publishers lost out. For example, under the waterfall system there was every chance that an SSP ranked last on the waterfall had a buyer who was willing to pay for a given impression, simply because another SSP or ad network further up the chain met the publisher’s floor price.
Header bidding on the other hand offers an impression to multiple SSPs and exchanges simultaneously. This helps get rid of this inefficiency, meaning that multiple buyers can bid at once for an impression without being constrained by an SSP’s position in the waterfall.
Before header bidding SSPs “fought over positions in the waterfall,” said Paul Gubbins, programmatic lead at Unruly, but he says you’d often see the same companies at the top of the waterfall, and the same at the bottom.
“If you were a DSP [demand-side platform] or the agency behind a DSP and you wanted to figure out which SSP had the best quality supply, ordinarily you’d speak to publishers and ask where SSPs were in their waterfall,” said Gubbins. “That would very quickly give you an idea of which SSP had the strongest relationships.”
With the emergence of header bidding, the nature of this competition changed. “Fundamentally, it meant a publisher could very quickly establish which SSP was delivering the most demand at the highest yield, since every SSP was given the same opportunity to respond with a price and an advertiser,” said Gubbins.
Reaching Out to the Buy Side
One major impact of heading bidding is the way in which it has changed the relationship dynamic between SSPs and both buyers and publishers.
Buyers have less incentive to work with as many SSPs as possible, since they don’t need to ensure they’re working with the SSPs at the top of different publishers’ waterfalls anymore. Publishers meanwhile can see better results by working with more SSPs, since none are now stuck at the bottom of the waterfall. Yu-Hsuan Lin, head of programmatic at Zenith, said that publishers he’s talked to say yield is their number one priority, and the more SSP tags they add, the higher their yield.
However, in spite of the changes to how the industry uses SSPs, it hasn’t impacted the SSP model as much as some might have predicted. While adding extra SSP tags does increase yield for publishers, it increases latency too, so many still work with roughly the same number they did before. And while buyers have fewer incentives to work with a large number of SSPs than they did before, there are still obvious benefits to casting their net wide across the largest amount of inventory possible.
The demise of the waterfall model has changed how SSPs compete with each other. As an SSPs place in the waterfall no longer guarantees success, demand-side relationships are the new major differentiator, so SSPs have begun investing more time and effort into their relationships with agencies and advertisers.
“Up until 24 months ago very few SSPs had people who went beyond the DSP, to go and stimulate demand at the agency trading desk level,” said Gubbins, but now there is more incentive to go and drum at demand at the agency, convincing clients of the benefits of their particular product.
Lin agreed that he’s seen more SSPs reaching out in the last few years trying to build more concrete relationships. “Now we’re having more direct conversations with long-tail SSPs, who want to put a face to a name and know you personally,” he said.
Header bidding isn’t necessarily the primary incentive behind this trend according to Lin, but rather that growth in the number of SSPs has increased competition, pushing SSPs to do more to maintain healthy relationships with those they work with.
“Header bidding is there to increase yield, but the fundamental need with or without header bidding is to secure those relationships with the sell-side and the buy-side,” he said.
Changes to Auction Dynamics
In order to appeal more to the buy side, SSPs now compete even more on things like how their bidding mechanics work, and how much they extract in fees, since these are really the core features they can compete on.
Interestingly, header bidding inadvertently incentivised bad actors, some of whom have been able to exploit auction dynamics. Here’s why. Header bidding rewards SSPs using first-price auction logic (where the bid submitted to is the actual amount bidded by the highest bidding advertiser) as opposed to second-price auction logic (where the highest bidder wins, but only pays the minimum amount needed to beat the second highest bid).
But, as AppNexus CEO Brian O’Kelley explained, even if four demand sources submit the same highest bid through four different SSPs, if only one of those SSPs uses first-price auction logic, the buyer funnelled through that SSP will always win.
This is good for publisher and bad for the buyer in the short term, since more is paid under first-price auctions than second price auctions. Over time though buyers will shift money away from publishers where they’re forced to constantly spend high CPMs, potentially hurting both the publisher and the buyer.
Partly as a result of this, many demand-side platforms have turning to ‘supply path optimisation’ (SPO), which both penalises SSPs using second-price auctions and helps to cut out duplicate requests. The good news is that SPO is working, so now SSPs compete mostly on their respective auction mechanics and fees.