Introduction to Bid Shading
What is Bid Shading?
Bid shading is a technique used in programmatic advertising to adjust winning bids, primarily benefiting advertisers by preventing them from overpaying for ad space. It emerged as a response to the shift from second-price auctions (where the winner pays the second-highest bid) to first-price auctions (where the winner pays their full bid). This method helps advertisers find a middle ground between these two auction types, ensuring they pay less than their maximum bid while still winning impressions.
Who Offers Bid Shading?
Providers of Bid Shading Technology
Bid shading technology is predominantly offered by demand-side platforms (DSPs) and some supply-side platforms (SSPs). These platforms use algorithms that analyze historical bidding data, such as win rates and average clearing prices, to determine optimal bids. By doing so, they help advertisers avoid paying full price in first-price auctions.
Impact on Publishers
Financial Implications for Publishers
While bid shading benefits advertisers by reducing costs—often resulting in savings of around 20%—it can negatively impact publishers. Since publishers earn less per impression due to lower bids, their overall revenue may decrease. However, even with reduced earnings from individual impressions, publishers can still maintain significant payouts because the mid-range bids determined by bid shading are often higher than what would be paid under traditional second-price auctions.
Future of Bid Shading
Evolution and Adoption Trends
As more DSPs adopt bid shading technology, its impact on both advertisers and publishers will continue to evolve. Advertisers will likely see sustained cost savings while navigating programmatic ad markets more efficiently. Meanwhile, publishers must adapt strategies to maximize revenue despite potential decreases in CPMs due to this bidding strategy.