Digiday: A proverbial black box’: Open-exchange auctions have a transparency problem

Supply-side platforms are like the Bermuda Triangle of programmatic, where money mysteriously disappears.

The Guardian sued ad tech firm Rubicon Project last month, alleging the exchange didn’t disclose fees it charged advertisers seeking to buy the publisher’s inventory. This case shed light on two big transparency issues on the supply side: It is unclear to a demand-side platform how much of the sales price goes back to the publisher, and if a bid price in an open exchange auction is inflated, said six ad tech executives.

“The industry has been talking about transparency on the buy side a lot, but not so much on the sell side, even after the Guardian-Rubicon lawsuit,” said one demand-side executive who spoke on condition of anonymity. “The whole SSP transparency issue is impacting market dynamics.”

‘A proverbial black box’
SSPs are known to charge publishers a fee to participate in an open-exchange auction, which is outlined in the contract between the publisher and SSP. But many publishers and people on the buy side alike don’t know that SSPs also charge the demand side a fee to participate as well. Will Doherty, vp of business development for Index Exchange, an SSP, pointed out that for open-exchange auctions, there is a contract between the DSP and the SSP (or exchange) where fees charged to the media buyer are often hidden in the fine print. They can come in the form of “tech fees,” “management fees” or “buy-side fees.”

“It’s a proverbial black box,” said Doherty, adding that he thinks the exposure of the fees will eventually pressure SSPs to stop charging them. “I don’t know if those fees can survive through this year.”

In practice, let’s say a publisher uses SSP XYZ that runs an auction with several bidders. If DSP A bids $10 and DSP B bids $5 for an impression from the publisher, DSP A will win the bid with a clearing price of $5.01 for this impression. But instead of reporting back $5.01, SSP XYZ may tell the publisher, “I sold this impression at $3,” so SSP XYZ can keep $2.01 as a fee indirectly paid by DSP A.

“This is currently the normal state of things for most exchanges, where the publisher does not know the actual price paid by the DSP,” said Doherty, adding, “We are fully transparent in this regard.”

Jay Friedman, chief operating officer for programmatic agency Goodway Group, added that there’s no way for the buy side to know how much the SSP is returning to the publisher.

That publisher may also have thousands of users on its site and serve thousands of ads in that single second, making it hard to figure out which ad each side is talking about, said Friedman.

Blind auctions may create fake bids
Another blind spot DSPs have is they can’t see other bids in an auction, so they can’t tell if a bid price is inflated or not. (Continued…)

Read More at Digiday

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