What’s behind PubMatic’s lacking $5 million in 2024 income?
In its Q2 earnings report in August, the SSP revised its income projection for the 12 months down after it noticed shortfalls from an unnamed DSP companion shifting to first-price auctions in Could of this 12 months.
The unnamed DSP was Google DV360, a PubMatic spokesperson confirmed to AdExchanger.
Till earlier this 12 months, DV360 contained a bidding logic that elevated its bid barely if an SSP tagged its bid requests as second-price auctions, based on two SSP sources who spoke to AdExchanger however requested anonymity. By tagging auctions as second-price to DV360, PubMatic was in a position to win extra auctions from the DSP, the sources mentioned.
Google confirmed that DV360 up to date its prediction and bidding logic earlier this 12 months, and that the change affected all SSPs. The thriller is why one SSP, PubMatic, misplaced $2 million in Q2 alone from the change, and expects to lose $5 million over the remainder of the 12 months.
A Google spokesperson mentioned its DSP runs each first-price and second-price auctions, and that it trusts SSPs to accurately sign which public sale they run.
“DV360 participates in each first-price and second-price auctions, and it’s the SSP that determines what sort of public sale to run,” the Google spokesperson instructed AdExchanger. “We at all times suggest change companions ship requested OpenRTB indicators for each impression to assist DV360 precisely assess and optimize bidding for obtainable stock.”
But when DV360 accepts bids from each first-price auctions and second-price auctions, that appears to contradict PubMatic’s framing in its earnings name that it misplaced income as a result of a DSP companion pressured a swap to first-price auctions.
What’s extra, most SSPs, together with PubMatic, proclaimed that they switched to first-price auctions years in the past. In a 2018 weblog submit, PubMatic CRO Kyle Dozeman wrote that the SSP “now runs first-price programmatic auctions on all multi-level stock (i.e. header bidding).” And all main SSPs, together with Google Advert Supervisor, have been working first-price auctions since 2019.
PubMatic declined to remark when requested to make clear.
Redistributed income
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What’s clear is that PubMatic was nonetheless working second-price auctions properly after the trade was speculated to have migrated to a first-price public sale mannequin. However how may a change to this setup trigger a $5 million income shortfall?
Previous to Could, PubMatic tagged its bid requests to DV360 as second-price auctions. And presumably, different SSPs used a first-price public sale flag.
DSPs use completely different bidding logic for second-price auctions in comparison with first-price auctions. Often, in second-price auctions, patrons bid greater, because the clearing value shall be decrease, only a penny greater than the subsequent bid. This dynamic could clarify why PubMatic was in a position to win extra impressions (and maybe at greater costs) when utilizing the second-price public sale flag.
However with that benefit stripped away, PubMatic’s win fee would dip. And the $5 million could be reallocated to different exchanges.
“Marketer budgets don’t simply fly out the window since you change your public sale sort,” mentioned one SSP supply who requested to stay nameless. “So the place’d the $5 million go? It didn’t depart the market. It’s merely been redistributed to competitors.”
The SSP supply added that their SSP noticed a bump in income in Could after DV360 applied the repair required to cease honoring second-price bid requests.
The truth that PubMatic was working second-price auctions in any respect – seven years after the trade moved to clear first-price auctions en masse in 2017 – perplexed even skilled advert tech insiders when PubMatic introduced the explanation for its change in income.
Regardless of the prevailing storyline, it appears second-price auctions aren’t solely a factor of the previous.
