I have heard some premium publisher folks state concerns that there could be issues with real-time bidding on display inventory due to asymmetric bidding and low bid density. Consider the following example that illustrates how low bid density (leading to asymmetric bids) could be a problem in the future as more impressions become available for real-time bidding. I'll make it unrealistically simple to illustrate the issue:
An impression shows up for bid. It has the following attributes:
- Male
- 34 years old
- Greater than $150,000 income
- Chicago DMA
- New parent
- Auto shopper
- Jewelry shopper
- Health club member
- Impression is 300x250 pixels
- Site category is entertainment
Four advertisers participate in the auction:
Advertiser 1: Pampers -- knows nothing extra
Advertiser 2: Ford -- knows user owns a BMW and has been shopping for Land Rovers through proprietary data deals
Advertiser 3: Zales -- has existing customer data that shows this is an inactive customer, a high spender in past who bought an engagement ring three years ago
Advertiser 4: An independent Chicago diaper service -- knows nothing extra
The bidding follows like this:
Pampers bids $1 CPM.
Ford bids $5 CPM -- it knows it has a low likelihood of converting this profile, so it doesn't bid very high.
Zales bids $40 CPM -- it knows that this customer bought his engagement ring at Zales three years ago, and given the new parent status, he is likely to be open to buying an expensive Mother's Day present.
The Chicago diaper service bids $10 CPM based on simple CPA optimization.
Because this is a second price auction, Zales will win, but only pay $10 CPM for the impression. In this simple example, that might not seem too bad. But in reality, it should be possible for the publisher to predict that this impression, based on past bids on similar impressions, would sell for much higher than $5 CPM. So the publisher has not gotten the maximum yield it could have gotten based on the auction it had in play.
In the future, I predict that publishers will make use of yield optimization technology to fix this problem. The publisher should be setting a floor price on a per-impression basis based on its prediction of value to the advertisers in the marketplace. The publisher probably could have comfortably set a floor price that would have given it a higher yield (e.g., set the price at $12 or even $20 CPM based on historical trends for this type of impression and the current bidders in the auction). But this is a very hard technology problem to solve.
In paid search, we've seen high bid density drive very high CPMs on highly desirable keywords within the auction. And where the bid density is lower, we've frequently seen lower CPMs. Essentially, bid density refers to how many participants within an auction are bidding over the same item. In paid search, overall this hasn't been a problem -- mostly because there are "single digit" millions of commercially viable keywords, and about half a million advertisers competing over them. This leads to pretty good distribution, with some keywords getting lots of competition, and some getting very little -- and overall the average yield being very high for the search engine. It's a supply and demand problem for the most part.
But in online display advertising, there are trillions of display impressions a month with fewer than 10,000 advertisers (at least, in the world we live in today), with most dollars being spent in the U.S. coming from fewer than 3,000 advertisers. Further, the role of agencies could significantly change under this new set of mechanisms. There's no reason that an agency using a DSP couldn't withhold bids from its stable of advertisers so that only the top bid available for any advertiser for each impression would be placed. From a bid density perspective, this could be damaging without the kind of yield optimization I mentioned above and the creation of competition between multiple advertisers that normally wouldn't have competed in the past. But there are still things that could drive lower bid density and lower publisher yield.
For instance: In an extreme world, each agency holding company could have its own DSP, and each of these would offer only one bid per impression as it reviewed the available targeting parameters and determined -- based on each advertiser's business rules -- which of their campaigns would have the highest bid. In other words, each DSP could run an internal auction prior to placing a bid in the publisher-facing system. That would reduce the density of the auction on the publisher side significantly, causing the publisher to reduce yield. But it does require significant process change from how things are done today.
In the end, I think publishers would be foolish to worry too much here. It's likely that their highest value impressions are going to go way up in yield, even if they see a drop on the rest of their impressions. And at the least, those two things should make up for each other. At the best, this could drive average yield higher in online display than we've ever seen before.
Eric Picard is the advertising technology advisor to the Advertising Platform Engineering team at Microsoft.
On Twitter? Follow Picard at @ericpicard. Follow iMedia Connection at @iMediaTweet.
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