IX Perspectives

The Knowledge Exchange Blog : Sold! An Inside Look on Net vs Gross Bids

people holding bid signs and judge hitting the gavel

This post is dedicated to all publishers engaged in header bidding today, as an advisory. I will cut right to the chase: I am talking about NET vs GROSS bid prices submitted via the header. Where net represents the bid price offered, with sell-side margin factored in by the vendor, and gross price does not build in the cost of the vendor’s service. Simply put, net prices reflect the dollar value that goes directly to the publisher’s pocket. Gross prices do not.

Header bidding has empowered the ad server as well as third party mediation solutions to make a decision that is in the best interest of the publisher. Generally speaking, this means rewarding the partner who is willing to pay the publisher the most, with the right to monetise their inventory. For this to work, the decision-making engine needs to know the immediate value of the vendor’s service to the publisher (e.g. the dollar value that is accrued towards the publisher’s earnings).

As a publisher, you need to know the dollar value that is going into your pocket – if a vendor is not factoring in sell-side margins to their price signals, then price-based decisioning is rendered ineffective. When gross bids are dictating where your inventory is awarded, you are at risk of not getting the best price possible. This practice institutes an inefficiency that header bidding was intended to solve in the first place (and DOES solve, when implemented correctly)! It also defies the simple idea of fair competition: every participant needs to be evaluated under the same guidelines for the environment to be truly competitive. If vendors are not held to the same standard, the lack of consistency creates an unleveled playing field.

Let’s think about this in terms outside of programmatic: transport yourself into Christie’s auction house. You’re looking to sell a beautiful painting you made, truly a work of art. The colours playfully complement each other across the wide canvas. The auction starts, the bids go wild – and I don’t blame anyone, it’s gorgeous. Everyone is thinking, “I MUST HAVE IT.”

Two bidders start going head to head – the first bidder ends with a $90,000 bid, but could not beat the final winner – closing the auction for $100,000 – SOLD! You’re very excited – as you sit down to finalise payment details after the showing, the bidder writes you a check for $70,000. Clearly, it’s a mistake.

“Sorry, I think you meant to write out $100,000 – that was the final closing price.”

“Ah yes, but I need to cover my cost, I need to get insurance protection for this beautiful painting, and I’ll need to carefully transport this back to my home – this is going to cost me $30,000.”

“Well, that doesn’t make sense, there was another bidder who was going to pay me $90,000 in full…”

I could continue the dialogue, but there is no plot twist I can offer to make what just happened logically.

The Christie’s auction is a simple metaphor for having a partner bid in gross with the final price being decisioned off that amount. This practice rewards behaviour that does not maintain a publisher’s best interests.

If you are a publisher who is looking to efficiently monetise your inventory and maximise your yield, be sure your partners are all submitting net, not gross bids. This is header bidding best practice – if your vendor raises their hand to make a bid at a given price, then oblige them to follow through. One bad player can undermine the entire promise of header bidding.

And so in closing, and in short: every partner should stand by their bid. This should be every publisher’s expectation, and it’s incumbent upon every vendor to follow through.

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