Unpacking The Trade Desk’s Sub-Floor Bidding Tactics

Understanding Sub-Floor Bidding

Before we dive into the impact of TTD’s sub-floor bidding tactic, let’s first understand what it entails. Traditionally, programmatic ads are sold through first-price auctions, where the highest bid wins. Publishers set floor prices, which act as the minimum acceptable rates for their ad inventory. However, SSPs often add their own costs on top of these price floors, inflating the minimum asking prices. This means that the actual price paid by advertisers is higher than the publisher’s floor price.

TTD’s sub-floor bidding aims to disrupt this practice by bidding below the set floor prices. The rationale behind this tactic is that the current pricing structure artificially inflates the minimum asking prices, leading to higher costs for advertisers. TTD argues that the prices determined by SSPs do not accurately reflect the true value of the ad impressions. By bidding below the floor prices, TTD intends to challenge the existing pricing dynamics and drive prices towards a more accurate market equilibrium.

Understanding The Trade Desk’s New Approach

TTD has taken a step that challenges the conventional mechanisms of programmatic advertising. Late last year, they have decided to send out all bids on behalf of their clients, even if these bids fall below the price point at which publishers and SSPs value the inventory.

“The Trade Desk is now sending out all bids on behalf of its clients whose campaigns match the inventory up for sale, even if their bids are below the price point at which publishers and SSPs value the inventory.” – Will Doherty, The Trade Desk’s VP of Inventory Development

This move can be seen as a push for transparency, as it aims to provide publishers with a clearer understanding of what advertisers value their inventory to be.

The Potential Impact on SSPs

While The Trade Desk maintains that this change is largely beneficial to publishers, the same cannot be said for SSPs. Most industry executives agree that SSPs and resellers are likely to lose revenue from this change. The Trade Desk’s action could compel SSPs to lower their fees, putting pressure on their net revenues. This is especially significant for SSP businesses, many of which already struggle to achieve operating profitability.

The move also signifies The Trade Desk’s growing influence on the sell side of the ad tech ecosystem and its efforts to reduce the role of SSPs.

The Implications for Publishers

The impact of The Trade Desk’s new approach on publishers is a subject of debate. While this move could result in publishers receiving more bids (even if they fall below their set floor prices), it could also decrease their leverage to negotiate the price of their inventory.

However, some experts argue that the impact on publishers may not be as significant as anticipated. Jana Meron, a programmatic and data strategy consultant, suggests that the true impact lies in whether SSPs lower their take rates. If SSPs do reduce their fees, publishers could stand to make more money, but this would be unrelated to the sub-floor bidding tactic itself.

It is worth noting that TTD’s sub-floor bidding tactic aligns with its larger strategy of cutting out SSPs and enabling advertisers to buy directly from publishers through initiatives like TTD’s OpenPath. By reducing reliance on SSPs, TTD aims to streamline the ad tech ecosystem and exert more control over the buying process.

A Change in the Market Equilibrium

The Trade Desk’s new strategy could potentially affect the market equilibrium for cheap-reach inventory. If this move results in a decrease in the demand for such inventory, low-end suppliers who are no longer profitable might be forced to exit the market. This could trigger profound changes across the ad tech landscape.

The Competitive Landscape

TTD’s sub-floor bidding tactic is not without competition. Other Demand-Side Platforms (DSPs) may follow suit and adopt similar strategies, further challenging the dominance of SSPs and potentially reshaping the programmatic advertising landscape. This competitive dynamic could lead to a shift in market share and influence between different players in the ecosystem.

However, it is essential to consider the potential limitations of TTD’s sub-floor bidding tactic. While TTD can bid below the floor prices, publishers still have the option to ignore these lower bids if they choose to do so. This means that the success of TTD’s strategy ultimately depends on the willingness of publishers to accept bids below their set floor prices.

The Role of Artificial Intelligence

In addition to its sub-floor bidding tactic, TTD has been actively exploring the integration of artificial intelligence (AI) in programmatic advertising. AI-powered features have the potential to revolutionize the industry and enhance the effectiveness of ad campaigns.

One notable application of AI in the advertising space is demonstrated by Amazon’s development of AI features for Thursday Night Football. These features include graphic overlays that help viewers follow the live gameplay, such as highlighting players on defense about to run in for a blitz or indicating the likelihood of a kicker making a field goal. By leveraging machine learning and neural networks, Amazon aims to enhance the viewing experience and provide valuable insights to fans.

The integration of AI in programmatic advertising is not limited to Amazon’s initiatives. Many other companies are exploring AI-driven solutions to optimize ad targeting, improve ad quality, and enhance user experiences. As AI technology continues to evolve, its impact on the programmatic advertising landscape is likely to be significant.

The Dual Role of Advertisers and Investors

The implications of The Trade Desk’s new approach also extend to advertisers and investors. For advertisers, the constant quest for cheap reach could lead to a decrease in the probability of driving incremental impact. Meanwhile, for investors, the push for cheap reach could result in an increase in the volume of impressions running through the “ad tech factory”, reducing marginal cost and increasing the probability of capturing contribution margin.

Conclusion

The Trade Desk’s move to bid below the floor price has undeniably stirred the waters of the programmatic advertising landscape. While it has sparked controversy and debate, it also represents a potential shift in the market dynamics and a challenge to the conventional mechanisms of programmatic advertising.

Whether this move will ultimately be beneficial or detrimental to the various players in the landscape remains to be seen. However, one thing is certain: as the digital age continues to evolve, so too will the strategies and tactics employed in the programmatic advertising landscape.

References & Further Reading

• How The Trade Desk’s new sub-floor bidding tactic will affect SSPs, publishers
• On TTD bidding below the floor price