Sold! An Inside Look on Net vs Gross Bids

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 monetize 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 colors 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 finalize 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 logical.

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 behavior that does not maintain a publisher’s best interests.

If you are a publisher who is looking to efficiently monetize your inventory and maximize 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.

3 responses to Sold! An Inside Look on Net vs Gross Bids

  1. Rick Silverstone says:

    Paul, interesting post as we just started header bidding. We are presently in your queue to work with Index in early 2017. If there is no reporting showing gross vs net, we have to take their word for it? How can a pub know for sure? Our company just started with header bidding, as I mentioned, so I am not familiar, yet, with the various ways to gain access to this info.

    Like

    • Paul Zovighian says:

      Hi Rick,

      Great question, and welcome to the world of header bidding! Within the Index Exchange platform, you will have reporting functionality in your publisher interface, giving you a transparent view of the advertiser gross spend for your inventory, as well as the net earnings that are 100% paid out to you.

      Here’s how you can verify for yourself:

      Reconcile the net average CPM as reported by a given vendor, against the average CPM that is logged in the adserver for the vendor’s line items. This type of reporting (both vendor-side and adserver-side) is basic, and you should certainly expect access to this information.

      E.g. if the net CPM reported by a vendor is $2.00, while the adserver is reporting $2.67, then the vendor is likely signaling prices that do not factor in a 25% margin (the discrepancy between Vendor’s Net CPM and Adserver CPM). At the very least, there is a misalignment with what prices are getting signaled, and what prices you’re actually getting paid for.

      A more thorough method, is to run that same exercise, but instead of looking at overall vendor activity, you break out reporting by price levels. The adserver-side reporting will exist, but I cannot speak to all header bidding vendors having this capability. An examination of this depth will ensure that there is no misalignment, at any price-point.

      Don’t hesitate to reach out to your Index Exchange account team who can walk you through these steps in more detail!

      Like

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