Why publishers using header bidding setups should continue to leverage floor price optimization to avoid “leaving money on the table”
Most publishers face a persistent question after implementing header bidding:
“Do I still need to optimize price floors If I have a good header bidding setup in place?”
The short answer is “Yes”. (And by the way, you are not the only one wondering)!
In this article, you will learn how floor price optimization has evolved recently and why it is still required in today’s complex header bidding setups.
The Move to Header Bidding…
If you are reading this, you are aware that waterfall setups have become less popular with the advent of header bidding. With today’s tech, you can simultaneously engage multiple monetization partners and make them compete in real-time. As long as you bring unique demand from each header partner, header bidding is theoretically a solid strategy to maximize demand.
And Now There is This 'First Price' question...
Additionally, some tech players (SSPs) in the market are implementing or considering a move from the standard second-price auction model to first-price auction in the header, with the goal of theoretically reducing header bidding inefficiencies.
So what about floor optimization?
With all this change by the myriad of adtech monetization partners, a consistently clear signal of what to implement has become harder to figure out (welcome to adtech, right?). As a result, there is much publisher debate in the market today that goes something like this:
“I have maximized liquidity and demand by adding many partners in a parallel auction, and the first-price auction should theoretically give me the maximum value from each header partner, so is there there still a need for floor optimization?"
Such questions are smart ones and we can confidently tell you that a publisher removing floor optimization from their yield management activities will be leaving a lot of money on the table. To help you better understand why price floor optimization is still needed, we illustrate three reasons in this and the following article.
As mentioned above, most exchanges/SSP are either considering or already using the first-price auction model when they are called in the header. Despite this, the second-price auction is still the reference model in many SSPs, including Google AdX where the “final” auction usually takes place (i.e. the auction happening after the header auction resolves its winner). The second-price auction is also the applicable model in most "full stack" setups and proprietary in-house exchange mechanisms.
Bottom line: second-price auction is still alive. And by design, this auction model creates a gap between the highest bid in the final auction and its clearing price - known as the “bid reduction”.
So bid reduction still exists, even in a header bidding setup. Fair enough. But the whole point of implementing header bidding was to maximize liquidity! Therefore, bid reduction should be extremely low, leaving no room for floor optimization, right?
We will show in the next post that this assumption is far from being correct -- bid reduction is still vey high and liquidity is low in most environments. And, as a result, there is still a strong need for floor optimization.
(Click here for the 2nd and 3rd reasons to use floor price optimization in header bidding setups)