The more people who have a chance to buy your inventory, the more revenue opportunities you have — at least that is what publishers are often told. In reality, the opposite is true. This is due to a phenomenon known as Bidflation.

To understand this phenomenon, we need to understand the basic mechanics of a programmatic auction: when a user visits a Publisher’s website, it triggers an auction to show that user an ad. The auction information funnels through Supply Side Platforms (SSPs). SSPs then proceed to sell the ad slot to one of three places: a Demand Side Platform (DSP), another SSP, or in rare cases, their own direct advertisers. In ads.txt if inventory is sold from the SSP to a DSP or advertiser, the entry would be labeled “DIRECT.” If it’s labeled “RESELLER,” the inventory is being sold to another SSP.

In the auction, the highest bid wins the placement, and the other buyers lose the opportunity. The SSP declares the winner and passes the ad to the publisher, who renders the ad and triggers an impression at the agreed upon price. The user then sees the ad. This entire process takes milliseconds.

So what is Bidflation?

Bidflation is when that same user is sold to the same DSP or advertiser more than once in the same auction.

Essentially, there is only one ad slot available, but the buyer is being told there are two or more. This is because initial participants in an auction may all be selling to the same advertiser. This creates the following scenario:

From the Publisher’s point of view, there is one ad slot and one ad opportunity, but from the advertiser’s point of view, there are four ad slots and four opportunities. The Bidflation is then 4x. Because of this, the advertiser may place four bids. Yet the publisher can only select one, leaving the advertiser seeing a bid-to-win rate of 25%.

So what are the consequences of this? Initially, advertisers will raise bid prices to try to increase the bid-to-win ratio. However, once the advertising system realizes that increasing prices will not change their bid-to-win ratio (since there’s only one actual slot available, they can’t win it more than once) they will then simply reduce how much they bid on the inventory. This will result in publishers’ impressions stagnating and then decreasing.

How can Publishers address Bidflation?

The first line of defense is the Ads.txt file. Publishers need to ensure their Ads.txt authorizations are designed to reduce Bidflation instead of magnify it. If your ads.txt file is large (over 30 entries) it is highly likely you have a bidflation problem. Avoid reseller entries as much as possible. Publishers should understand the exact path an advertiser takes to get to their ad slots. Ad ops teams should inquire of their partners who their buying partners are, and ensure partners are not selling to each other or to the same advertisers in the same auction. This can be a difficult task, as not everyone wants to be transparent about their process. That fact alone could indicate a red flag regarding that partner.

Lastly, bidflation affects everyone involved in the ad supply chain. Having bid requests that cannot be filled being processed by ad systems has an infrastructure cost. That cost ultimately is taken from the Publishers. By addressing bidflation at its source, we can eliminate wasteful technology costs and unlock higher revenues for publishers.

Need help fighting bidflation? Spartan (http://spartanad.com) can help. Contact me at chris@spartanad.com to find out how.