Bid shading (no not bid caching) is a term that’s cropping up a lot more due to the shift from second-price to first-price auctions used in programmatic advertising.
As with anything in programmatic advertising, it’s worth keeping an eye on the lingo in order to stay on top of any changes. Here’s a primer:
So WTF is bid shading?
In programmatic advertising, there are two main types of auction: first-price and second-price. In a first-price auction, the highest bidder determines how much an impression gets sold for. In a second-price auction, the second-highest bidder determines the sale price of an impression. So in a second-price auction, if two buyers bid $10 and $15, respectively, the buyer who bid $15 will win but will only pay $10.01. Bid shading has cropped up as a compromise between the two. So the buyer will pay something in between what the second-price and the first-price value would have been, based on a calculation made by the ad tech partner.
How does it work?
The tech is predominantly available in supply-side platforms as a free service and is becoming a feature increasingly used in DSPs because of the shift toward first-price auctions. The vendor will analyze bid-history information, such as what bid rates typically win on a certain website, or in a certain ad position, or at what price bids are lost, for example, to calculate what a bid should be that is somewhere in between what the first and second bids would be.
Why has it come about?
Bid shading has been developed as a sweetener for buyers who weren’t too happy about suddenly having to pay far higher prices than they were accustomed to when first-price auctions gained traction. “This is a product to soften the blow for buyers, especially DSPs, which aren’t yet configured to operate in a first-price world,” said Matt McIntyre, head of programmatic for Europe, Middle East and Africa, at Group M agency Essence. “It’s very important for buyers to know what bid shading is. It reduces the risk of us overpaying [for impressions] in a first-price world.”
Do publishers gain from it?
It’s more a useful toolkit for buyers than publishers, but given the mid-range price is still likely to be significantly higher than what would have cleared in the second-price auction, publishers should in theory still get a good payout.
Do buyers pay extra for it?
They haven’t until now, though that may be changing. Google has its own version, as do other independent vendors albeit packaged and branded differently. There are now signs that certain vendors will start charging buyers a fee if they want to use bid shading. That’s not something all buyers are happy about.
Any down sides?
It’s not particularly transparent, so buyers will have to rely on whatever the vendor has said is the right price. “There is very little accountability in terms of us being able to audit whether they [SSP] have extracted as much value as possible,” said McIyntre. “It looks like they’re saving you money, but how can you prove it? It may be easier for the DSPs to show the maths of how they’ve got there, but an SSP can’t show buyers that.”
Why is this happening at SSP and not DSP level?
Not all DSPs could switch to a first-price algorithm overnight, according to Paul Gubbins, head of programmatic at News UK-owned video marketplace Unruly. “We have spent the last 10 years of programmatic buying and selling where second-price auctions were the norm, so DSPs won’t just be able to transition if a buyer flips the switch and asks for the DSP to bid into an auction that is clearing on the highest first price. I envisage many SSPs offering these services until DSPs are fully equipped to flip in real time between first- and second-price auctions without exposing their buyers to unnecessary costs and inefficiencies.”
-
‘Weak Sauce’: New industry tool for opt-out from email-based tracking misses ID tech and key players like Facebook and Liveramp
The Network Advertising Initiative's new privacy control is intended to stop email-based audience matching — often referred to as onboarding.
-
How news publishers are using the Olympics and AR to flex their emerging tech storytelling
Big publishers like The Washington Post and USA Today are developing and expanding AR storytelling around the Olympic Games.
-
Member ExclusiveMedia Briefing: Publishers’ programmatic ad businesses have rebounded to pre-pandemic levels
This week's Media Briefing looks at how the pandemic and the cookie's eventual demise have created the conditions for the programmatic ad market that publishers have been pushing for, with a shift to private buying coinciding with prices pushing past pre-pandemic levels.
-
SponsoredHow the ad industry can use its borrowed time to future-proof first-party data solutions
Trent Lloyd, co-founder and head of brand solutions, Eyeota Google’s updated timeline for its Privacy Sandbox rollout, including its two-year delay of third-party cookie deprecation on Chrome, didn’t come as a surprise to many industry observers, given the limited utility of Google’s FLoC and the slow momentum of the Privacy Sandbox in the World Wide […]
-
‘They will need to use multiple routes’: Shifts appear in the publisher-SSP union, as alternative identifiers proliferate
As the ad tech industry rewires itself around the contours of privacy, supply-side platforms are reinventing themselves (again).
-
Future PLC drove nearly $1 billion in e-commerce sales in 2020
The U.K. media company has seen its e-commerce affiliate revenue increase by 56% in the first half of 2021 to represent more than 30% of its total revenue.
