It’s getting tough for demand platforms as they face the rising cost of supply of programmatic inventory.
Rising levels of invalid traffic and made-for-advertising (MFA) sites – together with the number of intermediaries entering the bidstream and taking their cut – are raising the cost of inventory.
A June 2023 Association of National Advertisers (ANA) report revealed that MFA sites account for 15% ($13 billion) of annual ad spend, with around 20% of programmatic auctions coming from MFA publishers.
How can demand platforms avoid waste and the costs associated?
Option 1: Work with the ad exchanges
Ad exchanges are a well-established route to market, offering easy and rapid access to millions of impressions, a wide choice of ad placements and the ability to control spend and frequency.
But there are several pitfalls. For one, ad exchange take rates are high at around 20%, sometimes even higher. And pricing is not always transparent or consistent.
Let’s say you’re buying Candy Crush through an exchange. What is that access costing you? 20%? 30%? Maybe even more? It’s not as simple as saying: “I have access to Candy Crush. Job done.” You need to test multiple exchanges and diversify your exchange mix to find the lowest cost of supply.
It’s also easy to fall into the trap of spreading your demand too narrowly across a limited number of exchanges. It’s important to test multiple large exchanges to determine the most effective spend per bundle ID.
Finally, some exchanges offer inferior renderability for more sophisticated ad formats like video and playable units since they often run their own ad network and prioritize optimizing their own demand or ad formats.
Option 2: Work with an SDK-less mediation platform
To avoid ad exchanges’ high take rates, consider integrating with an SDK-less mediation platform like Amazon Transparent Ad Marketplace (TAM), Amazon Unified Ad Marketplace (UAM) or Nimbus.
Amazon TAM charges a 2.5% cut, while Amazon UAM takes 10%. These fees are charged to the demand partner at the end of the month and, technically, the publisher gets 100% of the bid. Integrating with these platforms also requires no SDK to build, integrate and maintain.
Nimbus charges no demand-side fees and does not have its own demand sources, meaning there is no potential conflict of interest. Nimbus is simply incentivized to get as many demand platforms on board as possible and serve the ad to the highest bidder.
A potential downside is that you rely on their SDK for rendering and handling all the ad formats. This is an issue if you need to run video ads. Some of these SDK-less mediation platforms are display-focused, and their capabilities beyond straight display are limited.
Option 3: Build your own SDK and integrate with mediation layers and publishers
Demand platforms can build their own SDK and integrate it directly into apps. This usually happens through a mediation layer, which needs to certify your SDK and enable bidding functionality.
Mediation layers typically charge a bidding fee of around 5%. This fee is also charged at the end of the month, so, again, the publisher technically gets 100% of the bid.
In addition, if the demand platform has its own SDK, it can control creative rendering, rather than relying on an external exchange’s capabilities.
The downside is that creating an SDK, getting it integrated and building an SDK network takes years and millions of dollars.
Let’s say you’re an advertiser with a $1 CPI buying on Candy Crush through an exchange. After the exchange takes its 20% or so, your buying power is now effectively $0.80. If you build an SDK, the SDK has a direct relationship with the app developer, and if you can get yourself integrated, you’re only going to be paying 5% rather than 20%. Your buying power then becomes $1 (or $0.95 when you factor in the bidding fee).
But this doesn’t happen overnight. You would need to hire a business development team to sell the SDK for Candy Crush and convince the app developer King that it’s worth pulling engineering resources off other projects – like IP updates or creating new levels for the game – to integrate the SDK.
Once you put the necessary bidding adaptors in place and go through the due legal process, you’ll have your SDK integration, probably a year later.
Do the math and work out whether the money saved on the take rate and the potential added revenue justify the time, effort and investment that this approach requires.
What drives the most value?
Do you need to access supply quickly? Are you prepared to pay for it? The traditional exchange is probably the way to go for scale and proven performance.
SDK-less mediation platforms may not have all the ad formats or ad rendering capabilities some demand platforms need, but these partners offer lower take rates and easy integration.
If you have the time and resources to build a business development team to create direct relationships with publishers – and can see the ROI in doing so – then building your own SDK network might be viable.
It’s also possible to run your demand simultaneously through exchanges, an SDK-less mediation platform, and via your own SDK.
There’s no one-size-fits-all answer. It depends on where you are in your programmatic journey and what your goals are.
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