Header Bidding, Transparency And The Ideal PMP

rachelparkinThe Sell Sider” is a column written by the sell side of the digital media community.

Today’s column is written by Rachel Parkin, senior vice president of strategy and sales at CafeMedia.

Buyers talk about the need for access and transparency. Sellers talk about the power of header bidding technology. While the language may be different, both work collaboratively to solve for the same goal: delivering the best impression at a great price for an advertiser.

With the release of the ANA’s agency rebate report, the call for transparency is as loud as ever. Private marketplaces (PMPs) provide the gateway to achieve that transparency – not just transparency in inventory quality and brand safety, but also for fees.

Agencies and trading desks will certainly still have to determine what constitutes a fair markup for the value of their services, but the first step to openness starts with the media and technology costs. The possibility that price manipulations take place in either the demand-side platform (DSP) or the supply-side platform (SSP) – the so-called dark markets – makes it important to give control of the programmatic transaction back to buyers and sellers with PMPs.

Shifting to a new flat-tax PMP transaction model enables buyers and sellers to put the biggest share of an advertiser’s investment to work.

A Problematic Model For PMPs

Header bidding solves for half of the buy-side challenge, making the purchase of premium inventory at scale through PMPs possible. Before header bidding, very few high-quality publishers could offer programmatic access at scale. Because header bidding signals interest from a buyer before a publisher’s ad server allocates impressions, publishers can invert the traditional waterfall to clear header bidding PMPs before direct deals.

In addition to making PMPs scalable, the benefits are twofold: Buyers get true first-look access as well as the best inventory, presuming publishers funnel the most highly viewable placements into PMPs.

However, today’s standard percentage-based fee structure is more suited to open market demand than PMPs. In the open market, the DSPs do a lot of heavy lifting to create a desirable marketplace that attracts buyers and sellers. SSPs also market their exchange to potential buyers; hence, earning a share of that revenue aligns everyone’s incentives.

With PMPs, buyers and sellers negotiate a price and use their respective DSP and SSP technology partners to connect their pipes via a Deal ID. The technology partners provide a service and do not directly impact the value of the media. A buyer may set up PMPs with several publishers at a range of price floors and the cost of running these deals, from a technology perspective, is the same. The SSP and DSP do the same amount of work, regardless of whether one deal is set at a $4 CPM or another is set at a $12 CPM.

Under the standard, percent-based fee model, buyers pay a higher technology price (or penalty) for buying the premium media that advertisers most desire. This potentially discourages buyers and devalues inventory by cutting into the working media total passed to the publisher, thus reducing access.

A Flat-Tax Fee

The ideal PMP would put as much of the advertiser’s dollars as possible toward working media. A move toward a flat-tax PMP fee would mean that transparency can be achieved in pricing too.

In this scenario, buyers and sellers pay a flat fee to their DSP or SSP for all PMP media, as they already do for any verification or data targeting services they use. A flat-fee would need to be set at a rate that makes it profitable for the DSPs and SSPs since both provide valuable services and should receive a fair reward for their contribution to powering Deal IDs.

Buyers benefit because their working media is maximized as a percentage of their total bid. This means that the value at which a publisher prioritizes their PMP (assuming a price priority universe) is much closer to their winning bid, ensuring that buyers win more of impressions they want.

Publishers can also furnish other data and verification services, such as viewability, brand safety or audience segments, which can push a greater portion of advertisers’ investments toward working dollars and increase inventory access. In cases like demographics, context or endemic categories, a publisher knows its audience and inventory better than anyone.

The ideal PMP may appear to be more expensive but the net effective price for viewable or on-target impressions will often be cheaper or least equivalent to today’s baseline PMP buys. The combination of header bidding and a flat tax has the potential to take programmatic from an unreserved channel to a conduit for custom direct-sold programs.

The flat tax makes it cost effective for buyers to overlay all of their desired targeting, dayparting and frequency caps on high-value buying opportunities. And header bidding enables publishers to make all of their inventory available to reserved PMP buying and even prioritize by deal to flow traditionally direct-sold elements through programmatic pipes.

A flat-tax fee structure empowers PMPs to get the most inventory access, and ultimately is the starting point for giving buyers and advertisers the assurances and transparency they are looking for. Advocating for a flat tax on both sides of the ad tech marketplace will make PMPs a scalable medium with the quality and pricing transparency advertisers deserve.

Follow CafeMedia (@CafeMedia) and AdExchanger (@adexchanger) on Twitter.

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  1. There’s one thing I think that’s not being addressed here. Within a budget of $100,000, a 15% DSP fee is a ‘flat tax’ to a buyer, whether the buyer is paying $4 or $12. The buyer pays $15,000 regardless.

    • That’s true, but I think the point is about efficiency on a dCPM level per $100,000 spent.

  2. Matthew

    Entirely agreed with this. However this seems to come a little late, as most ATDs already negotiate with DSPs a fee structure that’s CPM based for Deal ID buys instead of a %. That publishers haven’t yet adopted this approach with their respective SSP vendors is sad, but however showing that transparency isn’t always an agency side issue.