Bid shading: a costly practice for advertisers

Advertisers are losing $6.6 billion yearly due to a lack of understanding about bid shading, according to a new study by AI adtech company Cognitiv.

What is Bid Shading?

Bid shading is an optimization practice offered by publishers for programmatic advertising buyers as an alternative to first-price auctions. These auctions often favor publishers, leading to increased costs for advertisers. Cognitiv’s study found that 70% of buyers pay an additional fee for bid shading, resulting in billions in waste.

The Impact on Media Buyers

• Shift to first-price auctions: 75% of digital media buyers believe that first-price auctions favor publishers.
• Increased CPMs: 64% of buyers report higher CPMs due to first-price auctions.

Why It Matters

The digital ad supply chain is complex and prone to fraud and waste. Advertisers must press agencies and adtech partners to minimize costs by monitoring key metrics like CPM.

Understanding Bid Shading

Digital buyers have varying interpretations of bid shading:

• A tool to adjust bids for first-price auctions (33%)
• An algorithm optimizing win-rate and CPM (32%)
• A tool that reduces bid amounts (22%)
• An additional fee (12%)

Expert Insight

“Bid shading is a generic tool across all campaigns that doesn’t consider an advertiser’s category, unique campaign goals, or the specific audience. Advertisers need a permanent solution designed for them by media buyers, not a temporary fix from publishers,” said Aaron Andalman, co-founder and Chief Science Officer at Cognitiv.