Bid shading costing advertisers $6.6 billion yearly

Media buyers don’t know much about bid shading and it’s costing them $6.6 billion annually, according to a recent study by AI adtech company Cognitiv.

What it is. Bid shading is an optimization practice offered by publishers for programmatic advertising buyers as an alternative to first-price auctions, which are thought to tilt the advantage toward publishers. Cognitiv’s study found 70% of buyers are paying an extra fee for bid shading, adding up to billions in waste.

Additionally, 75% of digital media buyers believe that the shift to first-price auctions favors publishers, and 64% say that first-price auctions cause CPMs to increase for them.

Why we care. The digital ad supply chain is complicated and has many opportunities for fraud and other kinds of waste. Advertisers need to keep the pressure up on agencies and adtech partners to keep costs down by tracking key metrics like CPM.

Dig deeper: What every marketer needs to know about programmatic advertising

What is it? Furthermore, digital buyers can’t agree on what bid shading actually is or does. Here’s what the survey respondents said:

  • It is a tool to adjust their bids for a first-price auction (33%);
  • It is an algorithm that optimizes their win-rate and CPM (32%);
  • It is a tool that manipulates their bid so they pay less (22%);
  • It just adds another fee to their bid (12%).

“Bid shading is a generic tool across all campaigns that does not take into account an advertiser’s category, unique campaign goals, or the specific individual being reached by the ad, but instead treats each campaign the same,” said Aaron Andalman, co-founder and Chief Science Officer at Cognitiv, in a release about the survey. “Advertisers need a permanent solution, one that is designed for advertisers by media buyers, not a solution that publishers offered as a stop-gap solution to keep advertisers placated.”

The study of over 250 media buyers, done in partnership with research agency Alter Agents, found that roughly a third of digital media buyers don’t even know that bid shading exists.

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