‘It’s not a sustainable market’: Header bidding puts a strain on DSPs
The massive adoption of header bidding is putting stress on demand-side platforms, which are seeing an explosion in bid requests.
Demand-side platform Turn processed around 1.3 million ad impressions per second in 2014. Last December, that number hit over 4.5 million. The Trade Desk has experienced a similar increase. The DSP peaked at 5.7 million impressions per second last December, compared to around 1 million two years ago.
“Now, one impression opportunity is resulting in multiple bid requests that DSPs need to process. That influx of bid requests is putting a strain on DSP hardware costs,” said Boris Mouzykantskii, CEO and chief scientist for media trading tech firm Iponweb. “In some cases, DSPs are needing to listen to 10 times more bids to achieve the same level of reach.”
A DSP incurs additional costs each time it responds to a bid request, whether it takes the bid or not. While the cost is only pennies per million impressions, the number can be significant if a DSP processes billions of impressions per day, according to Nathan Woodman, gm of demand solutions for Iponweb. He added that if a DSP’s revenue is tied to purchased impressions, bid duplication will cause it to pay more to buy the same ads, and its revenue will not increase. Sources said there’s no evidence that DSPs are passing on the added costs to media buyers, but that the DSPs profit margins are getting squeezed, which could cause some to eventually go out of business. “We will see a significant pivot in DSPs’ business model, and some DSPs already started bypassing SSPs to get the inventory directly,” said Woodman.
To keep up with the increasing impressions and deal with bid duplication, well-established DSPs like Turn, The Trade Desk and MediaMath have all scaled their infrastructure or improved their software efficiency. They also constantly test SSPs against each other.
“Our business development team builds direct publisher relationships and works with SSP partners to address any multiple bid request issues,” said Julius Ramirez, senior director of global business development for Turn. “We also have a team who manually curates impressions to deal with domain spoofing and duplicated bids.”
But small and midsize DSPs whose tech is not good enough to manage bid request explosion react by dropping bids. For instance, if a DSP can only handle 1 billion bid requests maximum per day but receives 5 billion requests from SSPs, the DSP will just drop the remaining 4 billion, according to Jason Fairchild, chief revenue officer for ad exchange OpenX.
“This is not a great outcome,” said Fairchild. “If a DSP doesn’t have a certain participation rate, an SSP will exclude the DSP in auctions going forward.”
The proliferation of header bidding has also changed the auction dynamics, Fairchild added. For instance, let’s say DSP XYZ bids $25 for an impression in an auction by SSP 1 and wins the bid at a clearing price of $5.01. SSP 1 then passes $5.01 to publisher XYZ that enables header solutions from SSP1, SSP 2 and SSP 3. Let’s say SSP 2 and SSP 3 pass a clearing price of $6 and $7, respectively. SSP 1 loses the auction to the highest bidder, SSP 3. Then, SSP 3’s bid of $7 is passed to publisher’s ad server (usually DoubleClick for Publishers) to compete against all the line items available. In the end, DSP XYZ loses the auction even though $25 is the highest price the impression can get.
“It’s not a sustainable market. The problem is a mix of multiple auction models: First-price, second-price and other formats,” said Fairchild. “The root cause is header-bidding proliferation and containers.”
That’s not to say header bidding doesn’t provide value for DSPs. Brian Stempeck, chief client officer for The Trade Desk, thinks that, in general, any DSP has to scale its infrastructure to keep up with the market when impressions go up anyway. So while the influx of bid requests could hit small DSPs hard, it doesn’t change the programmatic economics at The Trade Desk.
“After all, header bidding gives the access to the inventory that we didn’t see before,” said Stempeck.
Incurred costs from the influx of bid requests don’t mean that DSPs are charging hidden fees to media buyers. Publishers must limit the number of their SSP or exchange partners to relieve the pressure on DSPs from the proliferation of header bidding, according to Erik Requidan, vp of sales and programmatic strategy for Intermarkets.
“There are no hidden fees by well-established DSPs. It’s a squeeze, but the best DSPs are preparing for this — they will survive and thrive,” he said. “In the short run, the costs hit DSPs. But in the long run, it will hurt publishers who don’t control where they highlight their inventory.”
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