There is a common misunderstanding about the impact of header bidding on advertisers. A few select examples:
“Prior to the introduction of header bidding, it was practically impossible for buyers to get 100% visibility into a publisher’s inventory.”
“Publishers benefit through higher CPMs, and advertisers get access to more inventory.”
“[Header bidding] is better for the publishers, and also better for the demand side who would not have access to that inventory.”
We've made this same mistake in our previous posts on header bidding. The argument is not entirely wrong, but it greatly overstates the supply benefit of header bidding. In almost all cases, header bidding brings exactly zero new impressions to programmatic buyers.
Before Header Bidding There Was AdX
Publishers who adopt header bidding rarely move from a traditional waterfall to header-enabled ad serving. In almost all cases, header bidding publishers previously utilized Google's AdX Dynamic Allocation feature, which gives AdX the unique opportunity to conduct an RTB auction for each available impression.
This "before" configuration marginalizes AdX competitors, who are trafficked in the ad server based on their average yield. Impressions that might capture premium prices from programmatic buyers (i.e., better than the average) are awarded to AdX based on the outcome of its real-time auction. Impressions with weak demand (i.e., worse than the average) are awarded to AdX competitors, pulling down their average yield and further marginalizing their role.
AdX competitors developed header bidding as a response to AdX Dynamic Allocation. After deploying header bidding, the publisher's ad server looks like this:
In both the before and after scenarios, AdX conducts an RTB auction for 100% of the publisher's inventory. In the after scenario, those same impressions are also auctioned by the publisher's new header bidding partners.
More Auctions, Same Impressions
From the buy side, a publisher who adopts header bidding appears to have brought a heap of new impressions to the market. Bid request volumes often increase 2-3x and in some cases grow more than 10x. But these incremental bid requests do not represent incremental inventory. Instead, the same impressions are being auctioned multiple times through different ad exchanges. This is bad news for buyers:
- It puts a strain on DSP infrastructure, requiring ever-higher levels of QPS capacity
- It drives up closing auction prices, making inventory more expensive and putting pressure on advertiser ROI
- In some cases, it creates scenarios in which an advertiser second prices itself
Savvy buyers are organizing around the challenges of header bidding. They recongnize that header bidding is a sell side tool that helps publishers extract maximum price from buyers. Header bidding's publisher yield benefits come at the direct expense of buyer economics, and both marketers and their DSP partners need to rethink the way they participate in header bidding auctions. Make no mistake: header bidding was built to benefit sellers. Buyers beware.
Sources:
1: http://adexchanger.com/data-driven-thinking/header-bidding-not-just-for-publishers-benefit/
3. http://adexchanger.com/platforms/buy-side-guide-header-bidding/