A revenue-maximizing bidding strategy for demand-side platforms

Abstract

In real-time bidding (RTB) systems for display advertising, a demand-side platform (DSP) serves as an agent for advertisers and plays an important role in competing for online advertising spaces by placing proper bidding prices. A critical function of the DSP is formulating proper bidding strategies to maximize key performance indicators, such as the number of clicks and conversions. However, many small and medium-sized advertisers' main goal is to maximize revenue with an acceptable return on investment (ROI), rather than simply increase clicks or conversions. Most existing approaches are inapplicable of satisfying the revenue-maximizing goals directly. To solve this problem, we first theoretically analyze the relationships among the conversion rate, ROI, and ad cost, and how they affect revenue. By doing so, we reveal that it is a challenge to increase revenue by relying solely on improving ROI without considering the impact of the ad cost. Based on this insight, the maximal revenue (MR) bidding strategy is proposed to maximize revenue by maximizing the ad cost with a desirable ROI constraint. Unlike previous studies, the proposed MR first distinguishes bid prices from ad costs explicitly, which makes it more applicable to the real second-price auction (GSP) auction mechanism in RTB systems. Then, the winning function is empirically defined in the form of tanh that provides a promising solution for estimating ad costs by jointly considering ad costs with the winning function. The experimental results based on two real-world public datasets demonstrate that the MR significantly outperforms five state-of-the-art models in terms of both revenue and ROI.