The average advertiser uses 3 DSPs. Part #1 of this series examined the reasons digital advertisers make use of multiple DSPs in their programmatic bidding. Of course, the use of multiple DSPs also creates its own challenges. So in Part #2 below, we look at the challenges created around frequency and bidding against oneself by using multiple DSPs, and how the smart marketer overcomes these challenges.
Don’t multiple DSPs just bid against each other for the same inventory?
When advertisers think of using multiple DSPs to bid on inventory, the most common concern that comes to mind is that the inventory between the DSPs will overlap, and the DSPs will be bidding against each other. In other words, the advertiser will be bidding against itself, thus inflating its bids and artificially driving up media costs.
And in a world of 2nd price auctions, marketers can see why this is a scary prospect. We discussed in detail how bidding worked in Part #1 of this series, but here’s a brief summary:
First, DSPs conduct internal auctions and then sends the winning bid to an exchange or SSP for a subsequent auction. These DSP internal auctions are conducted on a 2nd price basis, which means that an advertiser bidding $25 for an impression will really only bid $5 in the SSP auction if the 2nd highest bid in the DSP’s internal auction was $5.
What does this mean if the same advertiser had multiple DSPs? Well, if the 2nd highest bid for the same impression in the advertiser’s other DSP was $10, then now the SSP is choosing between bids of $10 and $5 from the same advertiser. And if the 3rd price in the other DSP was $4, then the advertiser would have cleared the SSP auction at $4 if it had only used the first DSP.
This scenario is certainly possible, but marketers have increasingly overlooked this concern for two reasons. These reasons both stem from the rise of header bidding.
First, for all the bids that are inflated due to the use of multiple DSPs, there are as many bids that a single-DSP marketer that will lose in a header bidding world without using multiple DSPs. As was explained in Part #1 of this series, precisely because SSPs conduct 2nd price auctions, an advertiser can win an exchange’s auction, but lose the unified auction to an exchange that had a higher 2nd price that was lower than the advertiser’s actual bid price. So, if the advertiser’s main goal is to reach its audience, then it will want to use more DSPs (and win more internal auctions). This inevitably translates to more exchanges submitting the advertiser’s winning 2nd price bid to the header bidding unified auctions, and more wins overall.
Is this bidding against oneself? Perhaps, but with header bidding, this is often required to simply win enough auctions to achieve desired scale.
Second, header bidding is bringing about a seismic shift in real-time bidding from 2nd price auctions to 1st price auctions within SSPs and exchanges in order to eliminate this scenario in the first place. Since header bidding unified auctions select the highest price submitted by participating SSPs and exchanges, SSPs and exchanges are incentivized to maximize the chance of winning the auction, which means submitting the bid with the highest price. In practice, they follow 1st price auctions and submit the winner with their 1st price bid, rather than the 2nd price. Many SSPs, such as Pubmatic and OpenX, are now following this practice for precisely this reason. Once SSPs and exchanges are using 1st price auctions, the risk of inflating one’s bid goes away as long as an advertiser bids the same amount for the same category of inventory across their multiple DSPs.
How to control frequency with multiple DSPs?
A more serious challenge raised by the use of multiple DSPs than inflating bid prices is the loss of control over ad frequency. And here, this challenge remains largely underserved, even if the demand for solutions continue to grow among large advertisers.
The main reasons why managing frequency of ads served to individuals matters are (i) to limit the frequency of ad serving to individuals in order to reduce waste, and (ii) to avoid burnout and negative brand associations from over-exposure. We have all seen bad ad experiences where a brand bombards us with the same ads. So when using a single DSP, advertiser often follow the best practices of capping frequency by day (otherwise known as pacing) and by month, campaign duration or user’s lifetime (to limit the overall exposure to a brand’s advertising).
However, when using multiple DSPs, frequency capping becomes impossible to accomplish on the DSP level (since the DSP’s don’t actually talk to each other). What solutions are there?
One solution is to control frequency capping on the ad server. Doubleclick Campaign Manager supports frequency capping, but rather than suppress media buying (as a DSP would via frequency capping) DCM serves a blank ad. This solution is pretty unsatisfying to the advertiser, as it results in significant wasted media spend.
DMPs, such as Adobe Audience Manager and Oracle BlueKai, claim to offer cross-DSP frequency capping, by tracking ad impressions and then suppressing users via existing integrations with DSPs. It’s not uncommon to use a DMP to create suppression audiences, so this seems like a natural extension of this capability. Unfortunately, Google blocks DMPs from tracking impressions on GDN inventory. Currently 14 DMPs are blocked by Google from tracking impressions in GDN. Since Google touches a significant portion of display inventory, frequency capping becomes much less useful without cooperation from the Google ecosystem.
We expect the use of multiple DSPs to be a growing trend for major advertisers that require scale given the evolving mechanics of real-time bidding auctions. Spurred on by this new trend, these same advertisers who need scale will also be the ones most concerned with solving for control over frequency. Stay tuned for solutions that emerge in the marketplace.