Rubicon Lowers Fees As Q2 Revenue Slides 39%

 Rubicon Project has been steadily lowering its take rate over the past year to make its tech more appealing to publishers and buyers, who have pushed back against hidden fees.

During its earnings call Tuesday, the company revealed that the declining take rates are one part of its strategy to offer the most value for the lowest cost to buyers, who it hopes will route more spend to Rubicon’s exchange.

“We are working to be the lowest total cost-per-transaction provider,” CEO Michael Barrett told investors Tuesday.

Rubicon Project’s take rate averaged 21%. The company said it ended the quarter with take rates slightly less than 19%, where Barrett expects they will stay for the near future. Rubicon said the lower take rates came from reduced publisher fees, reduced buy-side fees and from a shift to private marketplaces, where it charges lower take rates.

In contrast, take rates in the first quarter of the year averaged 23.7%, and in Q2 2016, Rubicon sliced off 25.3% for itself.

Because of header bidding, Rubicon’s model is moving from a modest volume, high-margin business to a high volume, modest-margin business. The company accesses 50% more inventory than it did a year ago.

But as it weathers the shift to header bidding, revenue has continued to dive. Rubicon Project reported $42.9 million in revenue in Q2, down 39% from $70.5 million the year before.

As part of Barrett’s effort to reduce the total cost per transaction, it spent $38.5 million in Q2 to acquire nToggle, which offers supply-path optimization for demand-side platforms (DSPs).

With nToggle, buyers can look at fewer impressions, which reduces infrastructure costs and improves their win rate. It also reduces capital expenditures.

Rubicon Project expects the integration of nToggle to take about six months. CTO Tom Kershaw told AdExchanger after the earnings call that he aims to have integrations completed in the first regions sooner, by September. NToggle previously charged DSPs for its service, but Rubicon is offering its supply path optimization as an added feature.

Kershaw said that even large DSPs, with the bandwidth to look at a huge volume of bids, are interested in nToggle’s features. Since many DSPs rely on bidding data to build their algorithms and keep them fresh, Rubicon is offering them access to data on impressions they didn’t see.

Rubicon bets that the combination of lowered take rates, nToggle’s traffic shaping and a promise to become more transparent to its partners will pay off. Barrett predicts that the company will return to growth by the end of 2018.

“If we are able to have very competitive rates in the market, auction mechanics that are transparent and buyers lean into and come up with software that allows for a greater matching of prospects and ad dollars, we think we will steal share of wallet from competitors,” Barrett said.

The question is when and if buyers will prefer inventory on Rubicon’s exchange. Kershaw said Rubicon expects buyers to start routing more spend Rubicon’s way anywhere from one month to six months down the line.

“There is a time difference,” Kershaw said. “It takes buyers and algorithms some time to respond. We expect that price reductions will result in a significant increase in inventory and bids coming to us.”

While Rubicon focused most on how it’s reducing costs per transaction, the exchange still working to gain inroads to supply that isn’t as commoditized. Barrett touted its connections in the digital out-of-home space, where it has a “strong foothold.” And the supply-side platform has also been focusing on mobile app inventory.

Because of an integration with Amazon’s Transparent Ad Marketplace completed this quarter, it expects to be able to more quickly integrate with mobile apps in the future. The company will also roll out its own server-side header bidding solution in coming months.

This post was syndicated from Ad Exchanger.