Header Bidding is an advanced programmatic advertising technique that works alternative to the waterfall bidding method. It helps publishers to send ad space availability requests to many SSPs or Ad Exchanges simultaneously. In this article, you will learn all about “waterfall bidding” and also “header bidding”. Additionally, you will know the difference between header bidding vs waterfall bidding.
I believe you read my previous post “What Is Real Time Bidding? How Does Real Time Bidding Work?“. If not please read that post to understand this concept very well.
Read This Post : What is “Yahoo Backstage” Program? How Does It Affect SSP and Advertisers?
What Is Waterfall Bidding Method?
To understand header bidding, it is essential to know about the existing bidding model “waterfall bidding”.
In the programmatic advertising mechanism, one Ad Exchange is connected with N number of demand-side platforms and ad networks. The main goal of the Ad Exchange is to fill the ad space as much as possible to increase the revenue for the publisher. When an ad exchange receives an ad space availability notification (bid request) from the website, it won’t forward the bid request to all DSPs and Ad Networks connected with it. Instead, it follows a certain method for sending bid requests. That method is called “Waterfall Bidding Method”.
Ad Exchange categorizes the Ad Networks & DSPs. It groups them into several categories. Each group of categories has different priorities. For example, Ad Networks are categorized below,
>> Publisher Direct Deals [ 1st Priority]
>> Premium Ad Networks [ 2nd Priority]
>> Vertical Ad Networks [3rd Priority]
>> Small Ad Networks [ Low Priority]
>> Other Ad Networks etc etc
How Does Waterfall Bidding Method Work?
The main goal of the Ad Exchange is to sell the ad space at a hundred percent and make good revenue for the publisher.
Step 1 : When a user visits a website bid request is generated and sent to the Ad Exchange .
Step 2 : Please take note that publishers do not set any bid price for their ad space on open auction. Based on the previous average performances and average CPMs, the ad exchange fixes the bid price. For example, it fixes the bid price as $1.90
Step 3 : The Ad Exchange first sends the bid request to 1st Priority Ad Networks [Publisher Direct Deals].
Step 4 : If any advertisers within the first priority ad networks bid above the floor price of $1.90 [for example $2] then this advertiser wins this auction and their ad shows on the webpage.
Step 5 : If any advertiser is available under the 1st Priority ad network not bid above the floor price then this network sends pass-back information to the Ad Exchange. After that, the ad exchange again forwards the ad request to the next priority ad network, here 2nd priority ad network.
Step 6 : To be safe, the ad exchange lower the bid floor price when moving to the next Ad network.
Step 7 : If any advertiser under the 2nd priority ad network bids above the decreased floor price then the ad exchange reduces the price again and it reaches the 3rd priority and it continues until it finds any advertiser.
Advantages of Waterfall Bidding Method
Increases Revenue
The main advantage of the Waterfall bidding method is the Fill Rate. The below example gives you better clarity,
Let’s consider, 1000 Ad Requests made.
Premium campaign fills 20% of Ad Request at the price of $5 = So revenue is $1000
Remnant or Small Campaigns fill 100% of Ad Request at the price $1 = So revenue is $1000
But how waterfall bidding method increase revenue for the publishers?
Premium Campaign fills 20% of Ad Request in the first round. In the waterfall method, the remaining 80% of Ad Requests are sent to low-priority categories and filled by Remnant Campaigns.
Premium Campaigns Revenue = $1000 [20% * 5]
Remnant Campaigns Revenue = $800 [80% * 1]
So the total revenue increased by $800 in the waterfall method.
Easy to implement
Compared to the Header Bidding method implementation is very easier.
Disadvantages of the Waterfall Bidding Method
Revenue Decrease
I mentioned the advantage as “Increases Revenue” and now write the disadvantage as “revenue decreases”. Don’t Smile and Don’t get confused. The below example clarifies my point.
Let’s take the same scenario, Ad Exchange sets the floor price as $1.90 for one bid request. As per the waterfall method, it first sends the bid request to 1st Priority Ad Networks. If any campaigns bid higher than $1.90 [for example $2] then they will win this auction and their ad showing on a webpage. The entire process is over here.
Note carefully, In this method, the publisher/ad exchange does not know what other advertisers listed in the next level priority ad networks are ready to buy the same ad space. Even if they are interested to bid for $3 or more, they can’t participage in this auction. Because this auction process is already ended when the 1st category advertiser won this action by $2. In this scenario, publishers might face losses.
Secret Method
In the waterfall method, publishers only know the final winning bid amount.
Bid Loss
Due to the reason back and forth pass backs, bid requests are lost sometimes. So we can’t expect a 100% impression fill rate for passback bid requests.
What is a Header Bidding? How does it work?
To solve the above two disadvantages of the Waterfall Bidding method Header Bidding was introduced. Header Bidding is also referred to as Pre-Bidding or Advance Bidding. In this method, the bid request is sent to the Ad Exchange, and then the ad exchange forwards this ad request to all the DSPs at the same time. There is no priority in the ad networks/DSP.
Advertisers from all the ad networks or demand side platform send their responses to the ad exchange. Whoever bid the most will win this auction and their ad shows on the website.
To adopt header bidding, the websites/publishers need to implement some script or container. When a user loads the website this script gets executed and it will generate ad requests. This ad request is forwarded to ad exchange and it will send to multiple DSPs like appnexus, rubicon etc. Bid information from all over the DSPs is received to the ad exchange and who bid the most will win the auction.
Depending upon the design final auction is done in any one place, on the browser itself, or a Separate Ad exchange specifically designed for Header Bidding Auction. A certain time duration is allotted for receiving bids so an auction happens between the prices which are all received within that time. Who bids the highest amount will win this auction.
If an auction happens in the browser itself, it will increase the browser loading time and some inefficiency. So a separate ad exchange will be better.
Advantages of Header Bidding
For advertisers
In the waterfall method, low-priority campaigns can’t win the premium inventory slots since they might be won by high-priority ad networks. But header bidding will give equal priority so lower campaigns can also win premium slots by bidding high.
For Publishers
This method will give detailed information to the publishers, who are all bid, which is the winning bid etc. In this method, publishers can win the highest price amount for every single impression.
Fill Rate High
There are no back-and-forth pass backs here. So the loss of bid requests is very minimal in this method.
Disadvantages of Header Bidding
Page Loading Time
In header bidding, publishers need to run the additional scripts on their page. So it should increase page loading time. If the publisher connected with more ad networks then it should wait for the response and it takes time to process it.
Previously, auctions were processed by browsers. Sort of code and container executed it. In this method, it will take additional loading time. Now, Server Side auction method is supported for header bidding. So bids are received by the ad server and an auction happens there. The winning ad sends to the browser. In this method, the browser saves its power.
Not Easy
You can’t adopt and implement header bidding on your site. There are lots of processes you must learn before getting into this.
Keep monitoring
Once started, publishers should monitor the performance and make the changes accordingly. Also adding/removing buyers is also an important task in header bidding.
Conclusion
In this article, you have learned about waterfall bidding and header bidding. Along with that, you have learned the exact difference between waterfall bidding vs header bidding.
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