Header Bidding And The Future Of The SSP

ericberry-sellsiderThe Sell Sider is a column written by the sell side of the digital media community.

Today’s column is written by Eric Berry, CEO at TripleLift.

Many supply-side platforms (SSPs) herald header bidding as a liberating force, democratizing access to the publisher ad server and opening hitherto inaccessible inventory.

Yet this myopic view – that access to new inventory will materially grow profits for everyone on the supply side – only tells part of the story. Played out over the next several years, header bidding will fundamentally change the SSP business and reshape the business models of the future.

SSPs will ultimately have four choices: 1) create enterprises that exist in a low margin world, 2) find ways to justify sticky publisher relationships, 3) create nonfungible inventory that can only be purchased through the platform or 4) create demand-facing platforms.

Lower Margins

Header bidding allows multiple partners to bid for a given impression, even if it’s trafficked through Google’s DoubleClick for Publishers (DFP). If a programmatic buyer bids via its demand-side platform (DSP) through an SSP, it pays the SSP fee.

When multiple SSPs are header bidders for the same impression, the buyer frequently bids against itself across multiple SSPs. This directly incentivizes larger buyers and DSPs to bypass traditional SSPs and participate at the header level, which is already happening with companies like a9, Criteo and Xaxis. This reduces the cost for the buyer by removing the processing costs of duplicative impressions and eliminating the SSP fees.

In a header-bidding world where SSPs can only win if they return the highest yield on a per-impression basis to the publisher, reducing margin is the only way to win more impressions. So SSPs will have to take their medicine and reduce fees.

Good news: The industry has already seen new, lower-margin ad tech businesses emerge. Companies like Beeswax have moved away from a revenue share toward a hosting model, albeit on the demand side. BidSwitch, in moving closer to publishers, is providing a dramatically reduced fee structure compared to traditional SSPs.

It is inevitable that we will see SSP header bidding wrappers follow suit with a similar volume-based pricing model.

Sticky Publisher Relationships

We may see SSPs develop products that create bona fide value in sticky long-term relationships – outside of yield on a per-impression basis. A robust and effective deals/PMP marketplace is certainly valuable, as is a sales team that can help publishers secure those deals. It should be noted that deals themselves can be conducted within the framework of header bidding – so this may itself be insufficient – but similar technologies may prove invaluable for the publisher-SSP relationship.

Ideas may include more robust monetization strategies around user retention and holistic monetization that may deviate markedly from the traditional real-time bidding (RTB) framework. For example, showing a full-screen interstitial video may be more appropriate for less loyal users coming from Facebook – maximizing the full value of the user – than it would be for loyal customers. Strict RTB yield maximization, however, would not consider user experience with the lifetime value of a user the way a possible forward-thinking SSP might.

Consider that while header bidding necessarily increases the number of partners with whom publishers are willing to work, publishers may not want to work with dozens of partners. Thus, SSPs have an opportunity to differentiate.

Nonfungible Inventory

The future of the SSP may also be considered in the context of the inventory itself. If access to inventory is a commodity, which is the necessary result of header bidding, then only unique inventory presents an ongoing opportunity in the supply ecosystem. Unique supply includes fungible inventory provided on an exclusive basis in exchange for a guarantee made by a supply-side partner.

For some publishers, predictability or cash paid upfront may be particularly important. But guarantee-based exclusivity is unlikely to be a sustainable form of unique inventory over the coming years as programmatic demand grows in prevalence.

An example of unique inventory is found in in-feed video companies, such as Teads, StickyAds and others.

More generally, nonfungible inventory can be created when the SSP renders the ad, including in-feed video, native advertising and custom high-impact placements, as opposed to banners or video where the SSP cannot add value to the display of the ad. SSPs that innovate to generate ongoing performance gains are effectively creating unique inventory. Several companies have created unique inventory that can only be purchased through their platform.

Demand-Facing Platforms

Some SSPs have addressed commoditization by moving closer to the advertiser. This includes the above-mentioned deals sales teams, as well as the acquisition or development of a DSP. Rubicon and Smaato have pursued this strategy, and BidSwitch has developed both sides of the ecosystem. Given the long sales cycles and relatively entrenched nature of today’s DSPs, this strategy may take several years.

Header bidding is a profoundly meaningful change for the advertising technology industry. Disruption is a constant in ad tech – yet the scope of header bidding’s challenges to the entrenched players may not yet be fully appreciated.

Follow Eric Berry (@ezberry), TripleLift (@triplelifthq) and AdExchanger (@adexchanger) on Twitter.

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