Home Data-Driven Thinking Are Artificial Price Floors The Next Iteration Of Ad Fraud?

Are Artificial Price Floors The Next Iteration Of Ad Fraud?

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jim-carusoData-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Jim Caruso, senior vice president of product and client strategy at Varick Media Management.

The digital advertising industry has a history of concerns around viewability, brand safety and nonhuman traffic, especially within programmatic ad buyingWhile these are the most common factors that can compromise brand integrity, buyers face other types of fraud that often go unnoticed.

The rise of automation is closely linked with a perceived lack of oversight, leading to less scrupulous sellers gaming the system. Transparency issues related to pricing – specifically the price flooring within programmatic auctions – can go on for weeks before machines detect them. Could deceiving the buyer in this way be considered fraud as well?

While price flooring isn’t regulated, most buyers participating in auctions expect a second-price auction model. With this model, the highest bidder wins but pays the second-highest price rather than the amount they bid, which is usually a penny more than what the other bidder has offered. For example, a buyer who bids $8 over a buyer who bids $3 will expect to pay $3.01, or a price close to that number. If the buyer sees CPMs closer to $8 or more, suspicions arise.

Buyers understand that price floors are necessary to ensure that inventory brings in money for sellers and publishers. Buyers will often place very high bids on desirable inventory, assuming that they will pay far less for an impression when they win the bid. However, when the value of an impression is falsely represented, the trust between buyer and seller is quickly lost.

It’s worth noting that price flooring is OK on some inventory, when the impression is worth it and there is a high likelihood to convert. But it’s not OK when a supply source artificially sets a floor price on every single impression, including those that are available through other supply sources without the same floor. When this happens, buyers have a right to question whether this is a pure accident or if it’s a manipulation designed to raise the inventory supplier’s revenue.

Recently, traders spotted instances where a $30 bidding strategy on quality inventory won the auction, but the price ultimately paid was the $30 CPM high bid, rather than a price close to the second-highest bid.

To avoid a similar type of situation, advertisers must arm themselves with the necessary knowledge and technology. They can start by familiarizing themselves with artificial price flooring and requesting that their programmatic partners conduct periodic artificial flooring analyses to detect possible incidents.

Advertisers should utilize a team of dedicated and experienced traders to quickly identify this practice. Whether in-house or a third party, a human trader will immediately notice something is wrong when CPMs close at alarmingly high rates, whereas a machine could take far longer to detect the anomaly.

Advertisers can also request access to log-level data, a string of dozens of data points on every impression served across the Internet. Once an advertiser has initial suspicions, they can take a deep dive into their programmatic partners’ log files to see bid and close prices. This allows the advertiser and technology partners to decide which sellers to continue buying from by weeding out those with artificial price floors.

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Finally, advertisers can maintain direct, personal access to the seller. The current anti-fraud practice is to simply turn off low-quality sellers. But in the case of artificial price flooring, the best approach is to directly reach out to the seller. Since artificial price flooring isn’t necessarily linked to low-quality inventory, advertisers may find themselves dealing with sellers who hold a lot of status in the market. They can discuss the price floors, find out if they are specific to the advertiser and inquire about the possibility of removing the floors.

When it comes to programmatic, an advertiser’s top priority is to deliver the best results while protecting its brand, whereas the publisher’s top priority is to optimize its yield. But to what extent are publishers doing this?

Programmatic is about efficiently paying fair prices for inventory, but in order to do so, advertisers must be aware of artificial price floors. The increased use of technology to transact media has made advertisers susceptible to errors and manipulation. Fortunately, it’s also made it easy to act swiftly to successfully combat these issues.

Follow Varick Media Management (@VarickMedia) and AdExchanger (@adexchanger) on Twitter.

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