Dynamic Bulldinkie

Complicated Problems, Simple Solutions

My “back to NYC triumphant blog post” has been spurred by a conversation in Beeler chat about Dynamic Revshares (basically, are they “OK” or bad for publishers).

For the uninitiated, a dynamic revenue share refers to a pricing dynamic within an ad exchange wherein the exchange charges a different revenue share fee on an auction by auction basis. For the ultra uninitiated, ad exchanges charge publishers a percentage of revenue for the honor of selling publisher inventory to ad buyers (buying via DSPs), and this revenue share is typically written out and negotiated in a contract but not always.

Let’s start out with why exchanges would do this –

In 2025, all ad exchanges have to submit their bids to another auction (at least in banners and native and OLV) – the Prebid auction – that occurs on the publisher page or in the publisher’s instance of prebid server. This bid has to be net of their fees – namely, they can’t submit their gross bid and then extract their fees later, as this would make the auction clear on false pretenses, so they have to submit the amount the publisher would actually get paid if their bid wins. Because of this, there exist scenarios wherein the ad exchange’s fee, and not the bid they were able to procure, preclude them from winning an auction – an example :

Ad Exchange A receives a $1 bid from DSP A, charges a 20% fee, so submits a bid of $.80 to prebid.

Ad Exchange B receives a $.90 bid from DSP B, charges a 5% fee, so submits a bid of $.855 to prebid.

In this scenario, even though Ad Exchange A received a significantly higher bid, Ad Exchange B wins the prebid auction because they’re charging a lower fee.

Ad exchanges 10 years ago didn’t have to worry about this scenario, because they weren’t bidding into prebid auctions – which means their greed basically went unchecked. But now, there’s competition out there, and they have to compete both on how high of a bid they can get from DSPs and their fees.

In its most basic form, Dynamic Revshares were born out of the fact that their fees actually affect their ability to win auctions. Ad Exchange A sees the above example happening (probably because some sales person complains about Ad Exchange B eating their lunch even though Ad Exchange A is more prestigious), and decides to do something about it. They realize if their machine learning teams (lol) can properly predict what the market clearing price for an impression will be, they can ratchet down their revenue share to win the impression (because a smaller percentage of something is worth way more than nothing at all).

So, in scenario above,

Ad Exchange A receives $1 bid from DSP A, their machine learning says it thinks the clear price will be $.86 because data scientists are infallible geniuses, and recommends that Ad Exchange A takes a fee of 11% just to be safe. They submit a bid of $.89.

Ad Exchange B, who doesn’t have a team of perfect AI data scientists, doesn’t have dynamic revshares. They lose the auction with their $.855 bid.

This, in my opinion, is the cleanest form of dynamic revenue sharing and is basically totally okay. This is because the dynamic revenue shared “flexed” down, and exclusively down. There was no “harm” here because they charged less than they normally do, and this article is going to be about harm, but I would advocate that this scenario in every instance will just make programmatic more efficient.

But what about less straightforward circumstances? Hearing about dynamic revenue shares, we should all be reminded of Project Bernanke

https://www.adtechexplained.com/p/google-project-bernanke-explained

– wherein dynamic revenue shares were being used in unsavory ways.

The unsavory way I want to talk about today where instead of decreasing their fees to win marketshare, ad exchanges increase their fees to maximize their profits. This can be as a result of simple greed (if your contract permits it), or a function of trying to compensate for when they flex down and their take rates look lower than their investors would like. And if you’re a real sketchball, sometimes you flex down so hard that you actually add money from your other advertisers to your bids. Literally, taking a negative revenue share as a company, and then making up for it later by charging the snot out of publishers. This is a cousin of Bernanke, just executed with a little less market control, and it is absolutely happening.

This, in my mind, is bad dynamic revenue sharing. This is just auction manipulation, where ad exchanges really look a lot more like arbitrageurs taking primary positions on media than they do neutral ad exchanges hosting unbiased and fast auctions. But I’ve been doing some soul searching on why it’s bad, because while lots of people complain about this behavior, I have yet to see someone articulate the actual negative effects this will have on the ecosystem, outside of some loose assumption of “publisher opportunity cost,” which I think is shaky.

It’s bad because in ad tech, we have a fundamental opportunity and a fundamental problem with transparency. And I don’t mean this as a buzzword, even though it is one. I mean this from the perspective of digital advertising is fundamentally broken when it doesn’t distinguish between working media and fees. And digital advertising is uniquely in a position to fix this.

There are companies that try. Fiducia is trying. Sellers.json is maybe kind of trying, if dangling your bare foot on the ground counts as getting off of the couch. But no principal actors (ie. DSPs and SSPs) are really doing it, and that’s who we need to fix the problem.

The reason this lack of transparency is bad for publishers is because these auction shenanigans (and the surrounding lack of transparency) create scenarios where the cost of publisher media looks artificially high. In the name of middle men taking their fees, a report consumed by an advertiser, or consumed by an advertiser attribution data science god(dess), is basically saying “publisher inventory cost X,” when in reality, the cost of publisher inventory was “Y Media + Z Middle Man Fees,” where Y and Z will function in crazy ratios sometimes (there certainly exist impressions where the middle man fees exceed the cost of the media).

It is then fully possible that the advertiser or data science creature decides that inventory doesn’t work for their campaign and pause all future spend to that publisher, when in reality, that publisher might’ve been ROI positive if not for the stinky middle men.

This is harm. Hell, this is, like, meaningful harm. I am not a lawyer, but there’s a non zero chance that the way ad tech has been constructed has led to unfathomable damage to publisher revenue by not disclosing what was working media and what were fees to middle men.

And that’s the solution here – it’s not complicated – we need to denote the cost of working media and the cost of middle men fees in every transaction in the ecosystem. It wouldn’t be hard to do, we already have supply chains “modeled,” and this is a simple thing for people to append. But it is a major uphill battle to make it happen, because I’m willing to bet these shenanigans are the tip of the iceberg.

All of that being said, if you’re a lawyer who works at/with a publisher, we were able to prove damages with Bernanke. Maybe you could be the ones who light a fire under the ass of transparency with a couple of strongly worded letters…