How Ad Networks Take Advantage of Blind Environments

20 Buzzwords & Other Crap Ad Networks Get Away With

Buzzwords are abundant these days. In pop culture it is all about crypto, blockchain, and ICOs. The mobile ads space is no stranger to buzzwords either. A few years ago it was all about "the brands" that were supposedly coming to revolutionize the mobile ad landscape and boost CPMs (they have not). Now we’ve moved onto terms like header bidding, programmatic, flattened waterfalls, and RTB, which will be the next big things on mobile to drive up CPMs. But will they? The answer is that it very much depends on whom you ask and your approach to ads.

We Have All Been Getting Screwed...

I recently saw a few studies about how programmatic (or header bidding/RTB, same things) boosted CPMs for advertisers by up to 30%. On one hand, that is great news! A new tech (albeit one that has been around on the web for years now) is helping to make the mobile marketplace more efficient and competitive. That is always a welcomed sign, right?

The opposing view to the news above is that we have all been getting screwed the past few years. That 30% lift we now “get” was certainly not going to us, the advertiser, all this time. Networks want us to be happy we are getting this bump, but how much in revenue did we all miss out on for years (years!!) that went directly to the ad networks themselves? They could have been paying us more all this time but just were not, because they did not have to. Granted some of this lift is due to a better ability to target users and dynamic ads, though not to the tune of 30%.

Are Things Really Better?

Yes and no. The biggest beneficiary of the rise of programmatic/RTB/header bidding is the owners of interstitial ads. The new bidding structure has allowed for the rise of remarketing, allowing retailers like Amazon to now follow you on your mobile device and show you products you’ve looked at. This has created incremental value, as those buyers are willing to pay more to show you an ad based on your user profile, browsing behavior, and/or LTV.

The benefits above have yet to catch up to mobile video. The first hurdle is content, as it’s difficult to dynamically create videos based on browse/purchase activity. The other is the power and CPMs direct response (DR) buyers still yield, especially for games. Most game ad networks still do not have sophisticated targeting options, at least not the features that buyers on robust-targeting platforms like Facebook can offer. This means that, almost by default, app similarity creates the necessary relevance targeting DR buyers need that help drive up CPMs. Often these CPMs are still far ahead of what brand advertisers are willing to pay.

One Party Guesswork

The DR landscape has benefited from a reduction in guesswork on behalf of the networks. Because DR buyers tend to buy on a CPI, networks have to translate this into a CPM. Under the old, legacy waterfall setup there were two parties trying to make these guesses. The ad supplier was estimating CPM based on things like conversion rates or advertiser bid history, two things that can change with little to no warning. Then, on top of that, the mediation system would guess as to the supplier’s CPM based on historical bids. A lot of mediators also had the issue in which they could only serve ads from a network once, meaning they could bypass a potential supplier with a higher CPM until it had the data to determine that the supplier should be prioritized higher based on historical data.

This all worked but was also highly inefficient. Now networks at least have to bid in real time, and can be called to serve multiple ads. So while suppliers still have to estimate the expected CPM, at least the mediation systems are not estimating things on top of this and are dealing more with actuals. An improvement.

The Devil in the Machine

Would you sell your house by doing no research and simply waiting for buyers to come in and make bids? You could, sure, but that is not how one maximizes value. Buyers' and sellers' interests are never aligned -- buyers want to buy for as little as possible whereas sellers want the highest possible price. This is still a major flaw in the mobile ads ecosystem:

The buyers of ad inventory (networks) dictate ad prices because the sellers (app developers) do not know the value of their ad inventory.

We trust that networks are giving us the best bids, but we can never truly verify this. Sure, competition helps and prevents any single network from completely taking advantage of sellers, but networks really only have to bid what they need to get what they want. Their algorithms are smart. First, they only need to bid up incrementally. They can try bids at $14.00, then $14.10, then $14.25. Meanwhile, they could be paying $15, but they have no incentive to bid this amount if they can win auctions at lower rates. Second, their algorithms are designed to make the networks money. While I have no issue with networks making a profit (they do provide a valuable service), I do have issue with not knowing what that profit level is relative to what they are paying out. It’s easy to be taken advantage of in this blind environment.

Combating All This...

There is no quick fix, and also this tends to fall into trade secrets. But, generally speaking:

• Know the value of your ad inventory. This is not easy to derive, but test, talk, and try to pin down what networks should be paying you.
• Keep up on tech. It does help, so keep your SDKs updated to take advantage of current features.
• Make deals carefully. Locking up your inventory with a network can be good for you, but can be great for networks. Reference the above to "know the value of your ad inventory" to evaluate deals that make the most sense.
• Trust but verify. Talk to networks & play with your mediation setup. Don’t just sit back and let buyers dictate the terms of your inventory.

To close -- it is not all doom and gloom. You can let networks bid and mediation do its thing automatically; there is still plenty of money to be made. The suggestions above are based on closing some of the lingering inefficiencies in the marketplace, though. Tech helps but should not be relied upon. Buzzwords are nice but often represent concepts that are not fully standardized or optimized. Taking a more proactive approach to ad management can help make your ads program incrementally better. If it’s not you making that incremental gain then it is money left on the table for someone else to take.

Kongregate offers ad management services to help developers maximize their mobile ad revenues. To learn more please contact us at mobileads@kongregate.com.