Behind the bid-caching debate, signs of ad tech commoditization

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Index Exchange’s undisclosed use of bid caching may have angered buyers and infuriated rival vendors, but it’s also a symptom of another ad tech challenge: supply and demand commoditization.

The days when a supply-side platform could claim unique demand because they have exclusive access to premium publisher inventory have disappeared, for a variety of reasons. Aside from the proliferation of SSPs in the market, programmatic advertising developments — most notably header bidding — have also put SSPs under pressure.

Header bidding was welcomed with open arms by independent vendors in 2015 as a way to loosen Google’s grip on the market with its waterfall structure to online ad auctions. Vendors that got in early on the header-bidding gold rush (including Index Exchange) were in a good position. But there have been some unintended consequences — one being that it’s now harder than ever for an SSP to claim any unique demand because they all have the same level of access to publisher inventory.

“There was a time when exchanges could claim to have more unique access to inventory, especially toward private marketplaces, but that’s not the norm anymore,” said Sarah Warner, digital investment lead for programmatic and video, at Group M Global. “There is a growing commoditization and duplication of supply.” To counter that, Group M has spent the last year advising clients how to cut down on the amount of paths to impressions they use, according to Warner. “If you look at the DSPs [demand-side platforms] that integrate with hundreds of SSPs and exchanges — to scale a business, you really only need 10.”

Group M is still in discussion with Index Exchange over the use of bid-caching, a method the vendor has now halted following the market backlash.”We’ve spent the last week combing our data, but it hasn’t shown anything alarming, so we can’t yet discern if this [bid caching] is uniformly bad or good for us as buyers,” added Warner.

Tweaking auction dynamics to gain a competitive edge is nothing new in ad tech. Although buyers and publishers agree that doing so without disclosing it to them is unacceptable; many believe that bid caching is indicative of what lengths vendors must go to remain competitive in a market where it’s increasingly hard to stand out.

“Independent SSPs are looking a lot more similar than they ever have before,” said Matt McIntyre, head of programmatic for Europe, Middle East and Africa for Essence. “You can’t innovate on supply or demand anymore. They [SSPs] have been doing auction tweaks to try and normalize things and bring it back in line with the idea of a unified auction. Different SSPs including Index Exchange did well being first movers in header bidding, but they’ve created their own market where there is no unique selling-point for supply.”

Another challenge for vendors is that any new development that promises to offer decent benefits to either buyers or sellers of inventory, soon gets imitated. “Innovation in ad tech has the lifespan of a gnat before it gets copied or assimilated because everyone is chasing the same goal — which is a temporary advantage over rivals,” said Dan Wilson, CEO of London Media Exchange. “That means innovation gets warped into something that it arguably shouldn’t be — this [bid caching] is the equivalent of a sub-prime mortgage.”

Although plenty of independent rivals have been quick to deny they use bid caching, or anything similar, some industry experts remain cynical toward those who claim to be spotless. “This whole bid-caching issue is likely just playing into Google and Amazon’s hands,” added Wilson.

Innovating beyond tweaking auction dynamics may be tougher, but it’s not non-existent. Rubicon Project’s $38.5 million acquisition of nToggle, a startup that builds infrastructure to streamline bid requests, is regarded as a smart way to help reduce the strain on costly bidding infrastructures, by experts. Meanwhile, some SSP vendor products are genuinely welcomed by publishers and buyers if they are proven to solve a current challenge. The problem is when publishers and buyers aren’t aware of what’s being changed, there is no way to monitor whether auction tweaks are genuinely market innovations that benefit either buy or sell side, or simply tactics to inflate margins for the vendors, said a publishing executive.

This same publisher has teamed up with one of its buyer partners to run tests looking into how much of the marketer’s money is ending up with the publisher, as a result of the bid-caching issue highlighting yet again that publishers and buyers are not always in the driving seat.

“Vendors are their own worst enemies, because they make it so hard for us to get log-file data [to show who is bidding on what inventory, when, and for what price]. We’re going to team up with the buy side to find a way of getting it,” said the same publishing executive. “I don’t want to rely on anyone that has an agenda.”

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