Since the pandemic rewrote the way consumers engage with technology—and more specifically digital content—traffic on publisher platforms has skyrocketed to record highs. While advertisers initially pulled back amid significant uncertainty in the market, demand for impressions came back strong in 2021. According to one eMarketer forecast, 2021 is expected to bring a 25.5 percent increase in ad spend year-over-year—the fastest growth rate since 2018.
Of course, the advertising supply and demand ecosystem isn’t quite so simple. Under the surface, advertisers and publishers rely on the delicate relationship between DSPs and SSPs to make sure the right ad gets to the right audience at the right time—ensuring publishers maximize ad revenue and advertisers maximize ROI. Yet, despite record ad spend and a booming ad tech market, the advertising ecosystem is increasingly showing signs of its age.
The Problem: Ad Opportunities and Bid Requests Are No Longer Synonymous
Across the advertising supply chain, rusty ad tech pipes and a lack of transparency continue to breed distrust from both publishers and advertisers. For example, one 2020 report by the Incorporated Society of British Advertisers (ISBA) and PwC found that a large, and growing, ad tech black hole is causing ad spend to dry up before it ever makes it to the publisher. Publishers currently receive only 51% of advertiser spend and one-third of supply chain costs go unattributed, according to the study.
While there are multiple reasons for the growing inefficiencies in the ad buying process, one of the fundamental reasons can be traced to the widespread adoption of header bidding. When publishers first began using header bidding strategies in the mid-2010s, it immediately led to rapid growth in the number and frequency of bid requests.
Header bidding suddenly allowed these publishers to create simultaneous auctions for the same inventory across multiple SSPs and exchanges at the same time. But this new header-bidding approach harbored one key inefficiency:
It created widespread duplication of bid requests, as multiple SSPs and exchanges peppered DSPs with the same ad opportunities over and over again.
Fast forward to the current header bidding climate and more than 90% of bid requests now result in wasted traffic that does not receive a single bid from DSPs and their advertisers.
As if that wasn’t enough, the ad tech consolidation arms race has intensified in recent years—driven by an overcrowded market and rising tech infrastructure costs—which has led to fewer DSPs and an even more strained relationship between SSPs and the DSPs that remain.
DSPs have responded to the bid request explosion with queries per second (QPS) limits designed to streamline the bid request process and reduce the high costs associated with trillions of requests. But this is far from a perfect solution, and it introduces new problems—namely, who should really be in control of filtering bid requests: the supply side or demand side?
Getting Back to the Basics: Delivering the Right Ad, at the Right Time, to the Right Audience
Ultimately, what both DSPs and SSPs were looking for was greater bid request relevance. For the SSPs, this meant finding a way to limit bid requests to the inventory that a specific DSP would actually bid on. While, for the DSPs, it meant reducing the overall bidstream and filtering out costly bid request duplication.
DSPs sought to solve this problem first by developing supply path optimization solutions that would help them to identify bids that were more likely to win an auction. However, these solutions sometimes made it difficult for SSPs and their publisher partners to understand how and why their bid requests were performing.
Enter traffic shaping. Traffic shaping is an automated process in which programmatic auctions are filtered to expose the relevance of each auction. Traffic shaping seeks to solve the wasted traffic problem by selecting a subset of bid requests that are more likely to result in bids when passed on to DSP partners.
“It’s simply acknowledging that exchanges cannot send 100% of ad opportunities to DSP buyers,” said Chris Kane, Founder and President at Jounce Media, a programmatic advertising consultancy. “And so, the shaping part is: Well, if I’m not going to send every part, what am I going to send?”
The theory behind traffic shaping strategies is that by sending only the most relevant advertising opportunities to each DSP, the infrastructure costs associated with waste can be greatly reduced without having a noticeable impact on SSP and publisher revenue.
According to research executed by Rivr—a traffic shaping solutions provider—traffic shaping can result in a reduction of bid requests by 30-60%, while still maintaining nearly 100% of existing revenue for SSPs and their publisher partners. Additionally, the infrastructure savings from this type of reduction in bid requests can drive massive profit gains for SSPs and their DSP partners.
So, What’s Holding Traffic Shaping Back?
Given the clear benefits, it would be easy to assume traffic shaping is a solution publishers, SSPs, exchanges, and DSPs should all be able to get behind. But that simply hasn’t been the case—as pent-up distrust across the advertising ecosystem harbors lingering concerns about the goals and use cases for traffic shaping. Not to mention, SSPs continue to view traffic shaping as a low priority initiative—far below their focus on consumer privacy and identity resolution.
In order to effectively move past these concerns, it’s time for the industry to address them head-on—and turn greater issue transparency into mutually beneficial solutions. Let’s take a look at three of the primary concerns holding the ad tech industry back from realizing its traffic shaping future:
Concern #1: Traffic Shaping Will Damage Publisher Revenue Streams
It stands to reason that when you start selectively sending bid requests to just a few demand sources, publisher revenue might be the first thing to suffer. After all, publishers have been conditioned from years of header bidding success to believe that the more SSP plug-ins they use, the higher their revenue will climb.
By shutting off supply from SSPs and publishers that generate high QPS with low returns, DSPs have changed this balance. In this emerging environment, publishers may find that peppering the buy-side with bid requests could get them blocked from critical sources of advertiser spend.
It’s a well-documented fact that modest bid requests and high margins are two things DSPs love—and they love them, even more, when they come together. At its core, traffic shaping seeks to optimize for both of these things. Traffic shaping results continue to suggest that traffic shaping can preserve nearly all existing publisher revenue.
Even better—once QPS limits become less of a guiding factor—publishers will be free to build competitive differentiation in powerful new ways.
“It’s exciting to us, [publishers], that we might be able to compete with other publishers on the quality of the ad experience and other aspects rather than QPS,” said Patrick McCann, Senior Vice President of Product/Data at CafeMedia.
Concern #2: Traffic Shaping Is Not a High-priority Investment
In a complex industry that also has evolving brand safety, identity, and ad fraud challenges to contend with on a daily basis, it’s often the same DevOps team responsible for tackling all of these issues. As a result, traffic shaping tends to quickly fall down the to-do list.
“Traffic shaping is not a high priority for an SSP, because—let’s face it—they don’t view it as an existential crisis,” said Benjamin Hansz, Vice President of Strategy at Rivr. “If an SSP doesn’t have the best traffic shaping, a DSP will still buy from them. But the moment an SSP fails to account for a growing fraud or brand safety concern? Revenues will dry up within 24 hours.”
However, this is a risky approach. Why? Because it risks devaluing bids over time, which could quickly lead to a fallout with publishers who wish to maximize the return on their available inventory. For this reason, waiting until traffic shaping becomes a bigger issue may mean waiting until it’s too late—when publishers have already moved on to someone else.
Concern #3: Traffic Shaping Is a Product Challenge for SSPs
This final concern stems from the previous one. If an SSP doesn’t have the bandwidth to tackle traffic shaping challenges right now, but also can’t afford not to, what can they do?
When the team at GumGum encountered this very problem, they didn’t like the options. Skipping out on traffic shaping altogether seemed like a good way to anger their DSP partners, but finding the internal staff hours to solve this complicated challenge wasn’t an option either. In their case, finding the expertise and bandwidth they needed to get traffic shaping right required turning to a third-party solution.
“A product like Rivr, even though we could spend a lot of time internally building a traffic shaping solution—as a lot of other SSPs have done—we didn’t feel like that should be our core competency,” said GumGum CTO Ken Weiner. “We could have built it if there wasn’t an option, but this seemed like a more efficient use of our time and capabilities.”
Pushback to a third-party traffic shaping solution tends to revolve around the belief that SSPs should prioritize investment in proprietary competitive advantages. But traffic shaping’s role in the ad tech ecosystem is too fundamental to the ecosystem’s future success to continue to ignore. As the industry hurtles toward its brave, new, less cookie-dependent future, the nature of programmatic trading and auction dynamics will only grow more complex.
Traffic shaping is an investment in a more productive and profitable future for the advertising ecosystem—one that meets DSP needs for reduced bid requests and maximizes publisher revenue. For that reason, it’s also a challenge that is perfectly tailored for a third-party solution that benefits publishers, DSPs—and every step in between.
Originally published on AdMonsters
Written by Tameka Kee