Waterfall Auctions and Header Bidding: What are they and which is better?

The development of adtech is always throwing up new ways for ad inventory to be bought and sold programmatically. Two popular methods are Waterfall Auctions and Header Bidding. This article will take you through exactly what they are and some of their shortcomings.

Waterfall Auctions

The goal of any publisher is to sell all of their ad inventory for the highest yield. If publishers are left with unsold inventory after exhausting direct-relationship channels, they might turn to a Waterfall Auction. In this scenario, a publisher will offer its inventory from ad network to ad network, starting with the ones the publisher views as most important, then working its way down until the inventory is sold.

Ad networks are ranked based on historic yield, or how much money that ad network has earned from the publisher in the past. Ad networks where premium inventory has been sold previously (for the highest price) will get the first chance to bid on inventory from the same publisher. If the first ad network doesn’t offer an acceptable bid, the inventory gets passed on to the next, and the next, and the next. Waterfall Auctions are easy to set up and usually ensure that publishers aren’t left with any unsold space.

However, the nature of Waterfall Auctions can lead to a lack of competition, and ultimately lower yields for publishers. If an advertiser willing to pay a higher price for a particular piece of inventory isn’t included in the first or second stage of the waterfall, they are cut out of the auction, and the sale price ends up being lower than if that advertiser had been invited to bid first. “Passbacks” (ad inventory being offered to the “next” advertiser) can cause latency and in turn, a negative user experience.

Header Bidding

This is another method used by publishers to sell inventory. However, rather than contacting demand sources (ad exchanges and ad networks, for example) one by one as in Waterfall Auctions, Header Bidding lets all demand sources bid on the available inventory simultaneously. Those bidding in time (Header Bidding implements timeout ranges) are considered.

The advantage of this method is that it increases yield for publishers significantly. Header Bidding brings all interested buyers together at the same time and considers all bids. This often means that a demand source willing to pay more than premium buys can be found, and avoids the problem of Waterfall Auctions where a demand source willing to pay more is excluded from the process.

While Header Bidding solves the issues associated with Waterfall Bidding, it does have its drawbacks. It’s technically more complicated to set up given that code needs to be added to publishers’ pages to connect it to every single ad exchange, ad network and SSP. Like Waterfall Bidding, it can also introduce latency to the process.

However, all in all, Header Bidding is more reliable than Waterfall Auctions in guaranteeing that publishers get maximum yield possible from their inventory.

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