Header bidding 101

TubeMogul VP of enterprise, Jeremy Pell
By TubeMogul VP of enterprise, Jeremy Pell | 7 December 2016
Jeremy Pell

If you are following the constant evolution in ad tech and programmatic, it’s likely that you have come across the term ‘header bidding’. In a nutshell, header bidding is a way for publishers to democratise access to their inventory, rather than prioritising direct deals. Some proclaim header bidding marks the end of the publisher waterfall, others say it levels the advertising playing field by exposing the publisher’s audience to all potential buyers. The practice has been around for a while, but it’s only now that the tides are beginning to change.

How does it work?

Let’s pretend you are a seller of bottled water – and as a salesperson, you want to sell the most in your company. In the current model, the best way to do this would be to offer it up to a large supermarket retailer who can take bulk buys of the bottled water off your hands. In return for buying in volume, they may expect a discount or reduction in price. Alternatively, they might be overstocked and unwilling to purchase any more. So, you look at the next retailer on your list – slightly smaller in size but (perhaps) in need of what you have on offer. What you have is a waterfall – with the stock dropping through the steps from buyer to buyer until it’s sold.

Current publisher monetisation works in a similar way. Most publishers sell impressions based on an established inventory waterfall. This is essentially a daisy chain of buyers which the publisher has prioritised access to its inventory. Deals struck by the publisher’s direct sales force often sit at the top of the waterfall, followed by a series of preferred deals and finally, if the publisher supports it, open exchanges. When a buying opportunity opens, buyers at the top of the waterfall earn first look and the option to purchase – if they chose not to submit a bid for the spot, the opportunity is passed on to the next buyer on the waterfall, and so on.

Header bidding works by having publishers offer inventory to multiple (approved) supply sources simultaneously, before making calls to their ad servers. The technology takes the form of a piece of code that publishers embed in the header of their websites – hence the name. The theory being that having multiple sources bid on the inventory at the same time (rather than sequentially) will increase yield and revenue for publishers. The dynamics of supply and demand dictate price or a fair market rate, potentially securing a higher price than pre-negotiated deals.

So how will this change things?

Because header bidding is a technical implementation on the publisher side, there is no immediate impact on advertisers. However, it may change the fundamental dynamics of programmatic demand in the long run.

1. Competition amongst buyers could increase pricing efficiency but cause more unpredictability. By leveling the field, buyers who would have been positioned lower on the inventory waterfall can effectively bid on an impression alongside all other buyers. Each impression will become more fairly priced based on the value it brings to the buyers – whether that price is higher or lower than before, is ultimately decided by the demand. Additionally, the determining factor for access changes from preferential treatment, to who is willing to pay the most for the impression. This likely means higher CPMs and less pricing and volume predictability, but, because buyers will presumably only pay for an impression based on the exact value it brings (rather than a fixed CPM), the overall effectiveness of a campaign should increase.

2. Large advertisers and publishers may change the way they negotiate deals. Direct deals with publishers generally afford fixed rates, higher quality ad placements and guaranteed impression fill. In many ways, header bidding disrupts this. Publishers may be less inclined to lock themselves into low fixed-rate commitments and advertisers would benefit from being able to optimise objectively across all inventory based on whether it delivers the right outcome, rather than being locked into commitments.

3. Advertisers will likely increasing usage of technology platforms to access premium inventory. In a hypercompetitive bidding environment, the ability to assess the value of an impression (e.g. audience, historical performance, etc.) and submit or withhold a bid in real-time becomes paramount. The leading platforms will have built out mechanisms to improve planning and forecasting in this new environment to maximise advertisers’ budgets. Additionally, advertisers need to consider centralising buys onto fewer buying platforms to avoid scenarios where they may inadvertently bid against themselves (e.g. their platforms compete against each other for the same impression, artificially driving up the price).

As we have seen in other markets, the tides are beginning to change in terms of the way Australian publishers are making their inventory available. Right now, a lot of people are talking about header bidding, but no one is really doing it. However as demand heats up in 2017, publishers may find that it’s time to move away from the waterfall.

By Jeremy Pell, VP of enterprise, TubeMogul

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