Today's Lift Letter is by Jared Skolnick
A recent Lift Letter covered Bidding Models for Exchanges and many nuances of the RTB marketplace were covered. The following statement was made in the context of bid reduction:
The ideal, of course, would be a real second price auction where each DSP submits all of their bids (or at least their top two prices) into a single consolidated auction.
The world where “each DSP submits all of their bids” is also relevant to the concept of Multi-Bid, where the DSP submits multiple bids into the auction for each impression. This Lift Letter covers the concept of multi-bidding, its advantages, and some speculation on why it hasn’t been widely adopted.
The concept of an open auction marketplace is meant to allow each impression to be bid on by any and all buyers interested in that impression. However, the way things operate today, many DSPs are limiting the buyers being given the opportunity to bid on an individual impression. The DSPs often select only one of their advertisers to bid on a given impression and, if that advertiser does not win the bid, no other advertisers within that DSP are given the chance to win that impression. The DSPs are effectively conducting an internal auction and only presenting one advertiser to the open auction.
Single Bid Scenario
In the visual below, the DSP has three brands bidding on an impression. But before the bids are sent to the auction, the DSP selects one, generally the highest price, and sends only that single bid to the auction. However, in this example, there is an auction rule blocking that bid, let’s say the supplier has an exclusive automotive deal and blocks Volkswagen in the open auction. Because of this rule, and the DSP submitting only that bid, Nike and McDonald’s are not given the opportunity to bid on this impression. This DSP loses the opportunity to fill that impression.
Issues with the single bid scenario include:
Limited Advertiser Exposure
Every advertiser operating programmatically is expecting that they will be given a reasonable opportunity to bid on each impression. When the first advertiser in the DSP queue does not win the bid, for whatever reason, the second or third or other advertiser in the queue should be given an opportunity, instead of the impression simply going to another DSP.
Limited Publisher Quality and Volume
Returning one bid shows far less bid density to publishers. And lack of bid density prevents publishers from opening up more high-quality inventory additional buyers. Returning multiple-bid responses increases bid density and incentivizes publishers to release better inventory.
Missed Advertiser Opportunities
No advertiser should miss a bid opportunity simply because of the advertiser ahead of them in the queue. The first advertiser winning the bid is an expected result, but if that advertiser is blocked and the next advertiser isn’t, that second advertiser should be able to bid.
Lost DSP Revenue
DSPs may be acting on behalf of their advertisers by offering up a single bid; but, in the end, both their advertisers and the DSP lose when the single bid doesn’t win. The DSP gives that impression (and revenue) to another DSP. And the initial DSP is preventing another advertiser of theirs from bidding.
Missed Deal Opportunities
Publishers often look at who is bidding on and losing on their inventory with the hopes of creating deals for direct access. When the bids are submitted, both sides lose out on this opportunity.
In a multi-bid scenario a DSP sends more than one bid into the auction allowing the marketplace to make a final decision based on more complete information. When compared to the example above, this example allows the DSP to win this impression for a different buyer instead of losing the impression to a competing DSP. While this won’t always be the case, one study of DSPs implementing multi-bid showed that roughly 20% more bids were won by those DSPs when submitting multiple bids.
Benefits of multi-bid include:
Increased DSP Revenue
Multi-bid capabilities allow DSPs to increase their number of winning bids, and thus overall revenue. As noted above, in one study, average daily revenue for three DSPs increased over 20% when multi bid was implemented.
Increased Publisher Inventory
An increase in bid density will result in publishers releasing more quality inventory into the programmatic marketplace.
Reduced Impact of Blocked Bids
Billions of RTB bids are blocked for valid reasons and unrelated advertisers miss out on that inventory as a result of a single bid solution. Those unrelated advertisers would now have the chance at a winning bid when others are blocked.
Why isn’t multi-bid widely utilized?
There are several major obstacles to multi-bid. A significant one is that DSP bids could be used against themselves, meaning the price they pay would possibly be the next-highest bid submitted - as opposed to some other lower price. Thus, in a world of limited resources, DSPs have limited incentives to build to a spec that, while true to the spirit of an actual second-price auction, would be economically disadvantageous. However, as the market shifts to first price, this becomes less of an issue and, in fact, creates more incentive for multi-bid to be used.