Behind Index Exchange's 'predatory pricing technique'

Pippa Chambers
By Pippa Chambers | 20 August 2018

Global ad marketplace Index Exchange has been bid caching for more than a year, but did not make buyers aware until a recent blog post. See: Index Exchange comes clean about bid caching.

Bid caching, which involves holding onto a bid when a buyer loses a programmatic auction and then trying to use it to serve an ad moments later in a piece of content, has allowed Index Exchange to gain market share and deliver higher CPMs to publishers, but has angered media buyers and rival exchanges, according to AdExchanger.

In a 'perils of bid caching' post on LinkedIn today, VP of strategic solutions APAC at Sizmek, Tim Whitfield, said he is not a fan on bid caching.

Whitfield explained how in programmatic media, internet latency is a “massive factor”.

“Programmatic auctions need to respond within a few milliseconds or else they are ignored,” he said.

“Some ad tech companies adopted the real-time bidding standard called 'bid caching' which basically means remembering lost bids and re-using them for subsequent auctions.

“I personally am not in favour of bid caching as I feel that we (the industry) need to continue to build our technology on a foundation of transparency and trust. People should ultimately be accountable for auction dynamics; not computers.”

Cam Dinnie, customer success director APAC at Index Exchange rival, Pubmatic, agrees with Whitfield and said “trust and transparency between all parties is what will continue to grow programmatic”.

The company also took to Twitter to share its stance on the matter.

Speaking to AdNews under anonymity, one industry exec explains to AdNews what the issue is here and why people should care.

Why is bid caching bad?

"Header bidding has allowed all ad networks/exchanges to compete in real-time with detailed user/ad impression data. Their bids are adjusted based on that information. As a user visits more pages on a site - the value of the ad impression drops. The user usually becomes less engaged with ads as their site journey continues. Buyers through the exchanges know this - so their bids drop as the session goes on. Bid caching takes that very valuable first impression bid, and holds it until later on in the user's session. This allows an exchange to win more impressions later on in a user's session. But this isn't the impression their buyer had originally bid on. So, for buyers through an exchange, bid caching makes them pay more for an ad impression than they were willing to. It also restricts competing exchanges because they are trying to beat an inflated/artificial bid."

Why would Index Exchange do this?

"Index Exchange look like they did this to win market share. In Australia they were late entrants compared to Pubmatic, Rubicon and Google AdX. Bid caching has allowed them to drive higher revenue to the supply side (publishers) and gain market share from the other providers.

The fear for publishers is that this is a predatory pricing technique - used to squeeze out some of the other exchanges in the market. At which point they can adjust their bidding strategy and revenue shares which will leave the publishers with less ad revenue and less choice of suppliers

Bid caching also just makes their platform look like it performs better than other exchanges. They win more impressions which appeals to both buyers and publishers. Before people knew they were bid caching, people presumed they had better technology which meant they could respond quicker and more accurately to ad requests vs the competition. Bid caching suggests they were winning due to manipulating the auction."

What can we learn from this?

"Buyers/DSPs may stop spending through Index as a result of this. It depends on what their ROI through Index looked like. We expect Index's team who work with buyers will have some tough conversations at the very least. They haven't been honest about how they use their bids.

From the publisher's side - they've probably experienced some boosted ad revenue as a result of this. That probably won't continue without bid caching. So we'd expect to see the other exchanges regaining a bit of market share from Index. But publisher's probably won't remove them from the ad stack unless this news leads to financial or legal issues for Index."

In an addition to an earlier blog post from the firm on the issue, an email obtained by AdNews from president and CEO of Index Exchange Andrew Casale, titled 'Transparency, Innovation and Index Exchange', Casale says the company is regretful it was not more transparent sooner. See the full email here.

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