In the true sense of an auction, the buyer is responsible for paying for whatever they outbid everyone else for whether it be a physical object, service, ad space, etc. By bidding more than the others, the winning bidder is agreeing to accept responsibility for paying for whatever they won in the auction. In the programmatic environment, the buyer is accepting responsibility for paying for the opportunity to display an ad to a user. Many programmatic relationships further cement this fact by contractually obligating the winning bidder to pay once they win the auction, regardless of whether the ad is shown or not.
Requiring the winning bidder to pay regardless of whether an ad is shown or not can quickly break down though. There are several things that can occur which are out of the control of the buyer and can prevent the ad from displaying. Some of the things out of the buyer’s control are: the user leaves or closes the site or app before the ad has a chance to display, the ad server running the programmatic auction fails to properly send the ad to the publisher or the publisher is unable to display the returned ad for some reason such as an incompatible creative. In these instances the winning bidder is unwilling to pay since their ad was never shown.
In these instances, the buyer should be held responsible for paying for the auction, but that does not always happen for a couple of reasons. The first being that most programmatic auctions do not have the ability to determine the cause of the ad not displaying (ie was it something the buyer could control or not), the second reason being that many bidders are just the middle man. Meaning that they do not provide the ad they just facilitate bringing the buyer and seller together for a fee and thus they have only been told that an ad exists, they do not have proof one will display. If multiple middle men are buying from each other then it removes them farther from the actual ad creative and further limits their ability of knowing if an ad will display. These middle men do not want to pay for winning an auction if an ad does not display, though they should be held accountable. This is where the loophole exists.
If a buyer is not held responsible for winning an auction then they can use this to their advantage. They can bid whatever they want to win an auction and if they have an ad they send it to the publisher and get paid, but if an ad never displays then they are not charged. They have no risk. The publisher is the loser in this scenario. They have agreed to give the winning bidder the opportunity to display an ad, but they will not know if an ad will display or not until they attempt to display an ad on the page and if one does not display they will have lost the chance to give one of the lower bidders an opportunity to show an ad. So the publisher ends up losing out on potential revenue.
The mobile programmatic industry needs to improve its ability to determine why an ad did not display; whether it was in the buyer’s control and the buyer should have to pay, or whether it was not in the buyers control and the buyer should not have to pay. This approach will lead to more direct buying opportunities between buyer and seller and will benefit the publisher by increasing the probability that their ad opportunities will be filled.