‘Necessary, but insufficient:’ Advertisers are starting to question the value of low exchange fees

As advertisers start to understand what it takes to win programmatic auctions, they’re realizing it isn’t just a matter of making the highest bid. 

If it was then some of the largest programmatic advertisers wouldn’t be failing to win impressions despite being the highest bidder for them. And, during a tough year, finding ways to turn those losses into wins is key to those advertisers on the lookout for new ways to work their dollars harder.

In doing so, some of those advertisers have started to question whether they should be spending so much time pushing supply-side platforms to take a smaller percentage of their bids in the belief that those fees can indirectly affect a campaign’s performance.

The assumption is that the smaller the cut for the ad tech vendor the more there is in the actual bid to compete for impressions that it may have otherwise lost. When an SSP reduces its take rate from 20% to 10%, the marketer begins to win impressions that it was previously losing, for example. But some advertisers are turning this received wisdom on its head

In fact, large changes in bid price can often produce small changes in an advertiser’s ability to win those auctions, according to six programmatic execs interviewed for this article. They all agreed that lower exchange fees matter, but only to a point and only for campaigns that have well-balanced bidding strategies. When advertisers over-bid on impressions to compensate for high exchange fees — or when they buy them via auctions that aren’t even considered by the publisher — exchange fees are inconsequential to campaign ROI, they said.  

“The algorithms that manage programmatic auctions were first written to prioritize speed and consider how quickly a bid for impressions was made and executed versus if the bid was simply the highest but really late to the auction,” said Bob Regular, CEO of ad tech firm Infolinks.

When programmatic consultancy Jounce Media bought banner ads on one of the top 500 sites, per Alexa, in August it found that when the exchange handling the auction reduced its fee doing so had a minimal impact on the advertiser’s ability to win more impressions. The chances of winning those impressions were around 36.0% when the ad was bought on a $5 CPM and those odds rose to 39.1% when it was a $20 CPM. It suggests a slight benefit from increasing the bid price above $4 to $5 CPM.

“If marketers could attack one problem when it comes to improving their ability to win impressions then go after something other than fees,” Jounce Media founder Chris Kane. “Fee optmization is one of those neccessary, but insuffcient aspects to programmatic advertising.”

Aside from the size of a bid, an advertiser’s chances of winning impressions are also affected by a myriad of technical issues, from the auction closing before a bid has been made to bids from certain ad tech auctions having priority over others in certain auctions.   

Even the way demand-side platforms bid on behalf of advertisers can’t always mitigate the perceived benefits of lower exchange fees, as Omnicom recently discovered. 

“We’ve done some controlled testing and discovered that the bidding algorithms that are built into DSPs aren’t actually sensitive enough to small price fluctuations to take advantage of reduced SSP take rates,” said Ben Hovaness, managing director of marketplace intelligence for Omnicom Media Group.

According to Hovaness, tests showed that the potential for winning additional impressions as a result of paying a lower fee to SSPs was blunted by the fact that they created such a small change in the total cost of impressions that the DSPs didn’t adjust their bidding behavior.

In a programmatic buy, if an agency DSP bids a dollar for an impression, the SSP takes a 15% cut and subsequently sends 85 cents to the publisher’s auction that it eventually wins. Ideally, if the SSP’s cut shrank to 10%, the DSP would react by reducing its initial bid from a dollar to 95 cents. In the real, world, however, DSPs aren’t able to automatically capitalize on those small shifts in SSP fees.

“Advertisers should be very suspicious of anyone in the market claiming that there’s a direct link between reducing exchange rate SSPs and actual media savings,” said Hovaness.

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While some advertisers including Bayern have tested this theory, it’s mainly media agencies searching for conclusive evidence currently. 

At GroupM, for example, the media agency’s buyers have been quantifying the impact of exchange fees as part of their own attempts to broker preferred rates with SSPs. As those preferred partnerships become more common, the agency is getting a better perspective on the benefit to its clients of buying from those SSPs where the fee is low. 

“Price is still the most determinant factor [in auctions] and so anything that we can do to influence that in a positive way for our clients is a route worth pursuing,” said Mike Moore, director of programmatic partnerships at GroupM. “However, having lower exchange fees doesn’t preclude having sound bidding, audience and inventory strategies around programmatic campaigns.”

That these discussions over the value of exchange fees are becoming more frequent speaks to a wider shift within programmatic. The likes of Omnicom and GroupM alongside a handful of advertisers are starting to exert more control over how ad tech vendors curate their impressions and in doing so are putting themselves in a position to have the best view of performance, ad rates and inventory availability across many platforms. 

‘Whether its the take rate, the data, attribution or the quality inventory of the inventory, these things don’t work in isolation of each other when it comes to winning auctions, said Paul Frampton, CEO of Goodway Group’s European arm, Control v. Exposed. “Advertisers need to be able to be able to bring all those pieces together to properly manage because auction dynamics are complicated.”

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