Ad tech’s bid-caching controversy, explained

The method
Bid caching happens when a lost bid from one auction is used to fill a subsequent auction — but without the buyer knowing, and with slightly different ad targeting information. For example, if a demand-side platform bids for a specific impression on a publisher’s homepage to appear at a certain time, and it loses the bid, the exchange will roll the bid into another auction where the impression characteristics don’t quite match up. So instead of bidding on a homepage, the buyer could end up with the ad appearing on an article page. The risk: The buyer might not get what it thought it was paying for.

“Bid caching is fundamentally wrong,” said Dan Wilson, CEO of London Media Exchange. “You’re paying for something else. It’s like going to supermarket and getting beans, and at checkout, they swap it out for something else.”

The case for bid caching
The core argument for the use of bid caching has been that it helps publishers generate revenue from latency-heavy environments, such as mobile apps. For that reason, some publishers have been sympathetic to the latency justification made by Index Exchange.

“Watching their revenue and CPM since Sunday, there has been no major fluctuation to Index, so I don’t think it gave them as much of an advantage as might have been thought,” said a newspaper publishing executive. “I would agree with their statement that this may become the norm as publishers focus on page speed.”

The buyer view
Many, particularly rivals coincidentally enough, have piled on Index Exchange for the practice. The focus on transparency has likely added fuel to the fire. The fact that Index revealed that the method was reportedly used on 50 percent of its impressions, was another shock for buyers.

“I was surprised that this whole practice was happening,” said Stefan Havik, md of Dentsu Aegis-owned M1 and Amnet. “I had never heard of bid caching before this. It is murky at best. From a buyer perspective it means you’re getting stuff you haven’t been bidding on.”

Beyond transparency concerns, some buyers fear the practice can screw up their strategies when it comes to everything from frequency capping to brand safety. For instance, there’s no guarantee that these ads aren’t being held and served into less reputable publisher sites, although the risk is relatively small. Also, there is no way of knowing for sure if that user who has been served the ad of the original lost bid hadn’t just received the same ad from a different auction.

“Index Exchange maintains bid caching is a reasonable solution to monetization in areas where high latency is a challenge, mobile being one such example,” said Simon Harris, head of programmatic activation at Dentsu Aegis’ media investment arm Amplifi. “While latency is a challenge in this environment, we feel this solution falls short of the market’s requirements for transparency and welcome Index Exchange pausing this feature. There is a need for more formal governance in this area on acceptable practices and agencies. Ad tech vendors and governing bodies all have a role to play in creating these standards.”

Playing to a narrative
Let’s face it: Ad tech has something of a trust problem. The convoluted programmatic ad system is hard to understand, and that complexity has given cover to several instances of corner-cutting. Bid caching, especially as it was implemented without a peep by Index, fits the story that ad tech providers are often pulling fast ones on unsuspecting buyers and sellers.

“In that [ad tech] space where micro-seconds matter, everyone is trying to get an advantage,” said a publishing executive who spoke on condition of anonymity. “You might call it gaming the system, or you might call it ‘smart innovation.’ It’s more disappointing how they went about it and systemic of ad tech’s approach on both sides of the supply chain around transparency of pricing and techniques. For many in the industry, the issue comes back to the importance of ad tech vendors disclosing their practices with publishers and advertisers. ”

The Index Exchange development is another sign of how disintermediated publishers and marketers have become from the decision making,” said Danny Spears, programmatic director at Guardian News & Media. “It’s the machines that now decide how ad spend is distributed across the web and at what price. They’re essentially deciding how a publisher [and marketer] supply chain works while their response to the outcry feels disingenuous.”

The outlook
Like any good ad tech controversy, this one is likely to blow over. People will argue whether Index got its fingers caught in the cookie jar, but the company has a good reputation in the broader industry and will be given credit for reacting fast to the issue and halting the practice.

Buyers who spoke to Digiday on condition of anonymity said they weren’t likely to massively change their processes as a result. Any attempt to strictly monitor this in future, would incur large technical costs. Some believe that to progress and grow ad tech has to make these blunders, and the industry will work to retrospectively build in best-practice guidelines.

“Disclosure is the key here,” said an ad tech exec who spoke on condition of anonymity. “I would not be surprised if bid caching is a feature offered by all in 12 months as a option.”