Header Bidding in the Era of First-Price Auction

After Google announced its decision to move Ad Manager’s non-guarantee inventory to the model of First-Price Auction, the entire programmatic industry began speculating on the potential repercussions of this decision.

In this article, we have looked to share our observations on the first two months of the Header Bidding situation in the light of the First-Price auction reality and to assess whether fears of its imminent demise were at all justified.

Performance of Header Bidding in the First-Price ecosystem

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Rates

The above chart shows an increase in the eCPM index (price for 1000 impressions) in the period preceding the entry of First Price. The auction in the first price model was introduced gradually from the beginning of September and on 26.09 it reached its maximum level, i.e. a virtually 100% inventory was covered by the First Price model. Rates increased from EUR 0.6 eCPM to over EUR 0.7 eCPM, which translated to 14%.

The data used for the above analysis is derived from four different GAM accounts from different regions of the world, and in these accounts, many websites are monetized.

The increase in the eCPM indicator in Header Bidding may be due to two factors:

• Due to an increase in ADX rates, Header Bidding, in order to display its strength, was “forced” to bid higher. In the First Price environment, higher ADX bids mean that only higher bids from Header Bidding have a chance of winning the ‘bid and display’.
• The logic of the UPR operation is that floors work on the basis of the 12th priority, to include Header Bidding. This removes all bids below the given bid from the auction, which automatically increases the eCPM indicator. In the long run, the set rates may cause buyers to increase their bids in order to feature on a given inventory; of course, the condition for this would be a high-quality inventory.

Platforms

The eCPM saw an increase on all platforms. The charts below show the performance of two SSP’s: Criteo and Appnexus.

Revenue

The chart above shows an increase in revenues arising from Header Bidding. The increase in after entering the First Price model is close to 50%. As Olive wrote in her article, after the introduction of the First Price model, rates on ADX increased. This led to a ramping up of the pressure on bidders and buyers in Header Bidding.

It is worth remembering that most platforms buying through Header Bidding have for a long time operated on the basis of the First Price model. This adjustment was one of the outcomes of buyers adapting to the changes introduced in the bidding model in AD Manager.

Header Bidding vs other revenue sources

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Header Bidding revenue share

The chart above shows an increase in revenue share from Header Bidding compared to the total revenue from Open Market. The observed increase was from 9% to 12%, which meant a change of 3 percentage points. This change is not large, but clearly observable. We may suspect that the increase in the share of revenues from HB resulted from the buyer of this technology adapting to the higher ADX. Initially, after 26/09, growth was notably less dynamic; although things did pick up later.

Unified Pricing Rules and their impact on Header Bidding

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UPR rates differ from previously available rates targeting Open Market on ADX on several issues. The first difference is that UPR prices target all sources of monetization present in the Open Market environment – ADX Open Market, Open Bidding, and Header Bidding. It is not possible to give a different price to buyers from ADX and a different price to buyers through SSPs in Open Bidding or Header Bidding.

This procedure certainly has limited possibilities when it comes to the Supply Optimization process – a process that involves finding an opportunity to buy the same inventory at different prices, by buying inventory through different platforms.

What are the ramifications of UPR?

Any publisher wanting to use UPR is now forced to pay Header Bidding for the same price. As a result, some of the lowest Header Bidding bids have been removed, which in the long run will force buyers to bid higher.

Another change is that UPR rates will not allow for the anonymous price that targeted buyers without the need for a detailed inventory revealing what they had bought. Anonymous buying inventories have ceased to exist since the UPR rates have come into force. This means that currently there is no cheaper version of inventory, wherein buyers may buy inventory unknown to them. However, this change has not affected HB, only ADX.

Setting UPR rates is primarily intended to protect inventory against the bid shading process. This process sees buyers endeavoring to lower bidding prices and assess if the same inventory can be bought more cheaply. Due to the fact that UPR also targets Header Bidding, the real value of inventory will also be preserved when monetized by Header Bidding.

Summary

The introduction of the First Price auction model on Ad Manager was extremely important for the programmatic ecosystem. After the introduction of the new bidding model, we observed two main changes in the Header Bidding performance arising from the reality of buyers having to adapt to the new bidding environment:

• Increase of the eCPM
• Increase in the share of Open Market revenues from Header Bidding

For now, our analysis of the performance of Header Bidding allows us to state that the change introduced by Google has had a positive impact on the performance of this technology. Of course, this can be in part a result of the adjustment period on the buyer’s side, or simply a distortion brought about by the Q4 demand increase. So it would be safe to wait at least until Q1 before formulating any categorical conclusions. Either way, I think it’s safe to say that Header Bidding is here to stay and its value for Publishers will remain relevant.