Header Bidding: Definition, Pros & Cons

With the advent of programmatic advertising, much of the legwork is done by algorithms. Yet, there are still many challenges associated with machine-driven ad buying. Lost profits, poor quality of ads, lower loading speed, and a lack of transparency are just a few. So far, header bidding seems to be the only actionable solution to these problems, which accounts for its popularity. In 2019, 79% of 1000 US publishers took advantage of header bidding to monetize their vacant ad placements. Yet, despite header bidding being a buzzword in ad tech talks, it is still foreign to many. 

If you have no idea why “AppNexus header bidding” and “Criteo header bidding” are among the most popular Google search queries within the programmatic ad buying topic, this article is for you. Here, you’ll learn what header bidding is, what makes it better than a traditional waterfall, how it works, and its pros and cons.

Header bidding: an alternative to a traditional waterfall

As an advanced ad buying method, header bidding allows the publisher’s ad space to be offered to numerous demand partners at once. Since the mere definition of header bidding isn’t enough to understand its value completely, we will also compare it with the waterfall method, its predecessor.

The waterfall mechanics

Let’s say a publisher has several demand partners and one unused ad placement. In a waterfall, they are ranked based on their average historical performance. Besides, both parties agree on the price floor – the minimum price for the available ad space. When a user opens the page or application, the server calls upon the first partner in the “ladder.” If a satisfactory bid isn’t produced, the server sends a request to the next partner in the waterfall. The process repeats until someone reaches the floor. 

This strategy is meant to guarantee high fill rates — the percentage of sold ad placements against the offered ones. Unfortunately, reality is not so optimistic.

The downsides of a waterfall

For example, let’s set the price floor at $2. The first ad network bids $1, the second one — $2, and the third — $3. Since the partners are called one after another, the impression will be sold to the second ad network. This means that the impression is sold to the first network which meets the floor, even though its bid is not the highest. 

As shown in the example, the price floor doesn’t always equal the highest bid. Thus, if the winning partner happens to be higher in the ladder than the highest bid, the publisher misses on the opportunity to sell their ad space at the highest price. Besides, the waterfall setup allows calling only one demand partner at a time and the process repeats until the floor is filled, which increases latency and the web page loading speed slows down. With this in mind, the programmatic advertising community needed an alternative that would allow them to monetize their products to the max capacity without compromising on the user experience. This need is where header bidding steps in. 

How does header bidding work? 

Header bidding works like a real auction — demand partners bid simultaneously and the highest bid wins.

Here’s how header bidding works. A piece of code with several adapters is inserted in the header of the page. Each adapter allows sending a bid request to a particular demand partner. To avoid increased latency, the publisher sets the timeout (1-1.5 seconds) — the time frame within which demand partners have a chance to make a bid. Once the user opens the page, the ad server calls upon the demand partners, they bid, and the highest bid becomes the winner — all within the given timeout.

The header bidding auction runs on a user’s browser (client-side) or on an external auction server (server-side). 

The pros of header bidding

As shown above, higher profits for website/app owners and increased inventory options for media buyers are two main reasons why businesses are turning to header bidding for programmatic advertising. For instance, due to header bidding, The Telegraph managed to increase its programmatic advertising revenue by 70%. And though this information might be enough for you to invest in header bidding, let’s unpack additional pros of this technology. 

• More bidders with server-side header bidding: While client-side header bidding is limited to 5-7 ad sources, the server-side variety allows for up to 20 auction participants. This leads to better targeting, smarter impressions allocation, and again, increased yield.
• Reduced latency: As mentioned above, header bidding allows an ad server to request bids in parallel, which is opposed to the waterfall method where the process is performed sequentially until one fills. This reduces latency.
• Revenue-latency balance: Header bidding gives publishers more room for customization. This includes configuring timeouts, as well as adding and removing demand partners for a better revenue-latency balance.
• Fewer discrepancies: Fewer steps lead to fewer discrepancies between the publishers’ and advertisers’ reports.
• Valuable insights: Header bidding allows publishers to know the real price of the available ad placement.
• Flexibility: Though header bidding is considered to be an alternative to a waterfall, both methods actually integrate well with each other on the ad server. The mechanics are the following: header bidding runs an auction, gets the winning bid, converts it into a price keyword, and sends it to the ad server. On the ad server, there are special header bidding line items (which are targeted by the winning bid keyword) inserted into the waterfall with the specific density of price points (for example, every $0.1). The winning bid acts as a normal ad source competing with other ad sources in the waterfall. 

The cons of header bidding 

Even though header bidding seems to be a win-win option for publishers and advertisers, the technology isn’t without downsides. Let’s explore each of them in detail. 

• Slower loading speed with client-side header bidding: Since header bidding allows for working with multiple demand partners at the same time, it may decrease the web page loading speed and have a negative impact on user experience. However, the problem can be solved with server-side header bidding.
• Less transparency with the third-party prebid server: The issue arises when you are using a third-party prebid server, which also acts as a demand source at the same time. They might artificially prioritize their own bids, and you never know why they are winning. 
• Technical expertise is a must: Many publishers are reluctant to go for header bidding as it requires experience. Choosing and configuring a header bidding wrapper, managing the ad units, making changes to the list of demand partners, and other tasks associated with header bidding, require technical expertise. For a non-technical publisher, hiring a dedicated person with the needed skill-set is inevitable, which increases expenditure. 
• Duplicate bidding: To maximize reach, advertisers often use several DSPs, while publishers might have dozens of SSPs. As a result, the same bids compete against one another.  
• Report discrepancies: Though header bidding is known for causing fewer discrepancies than a waterfall, they still happen.  Discrepancies can result from the user leaving the page too soon, poor network quality on the user’s end, non-compliance with the viewability standards, ad blockers, configuration issues, and more.

Conclusion

Though the header bidding technique was invented a few years back, it continues to be the only answer to main issues associated with traditional programmatic media buying — inefficient demand source traversing, resulting in increased latency and lost profits. Besides, header bidding is proving to be an ultimate remedy for low fill rates, poor reach, less control, and numerous report discrepancies. Nevertheless, header bidding remains a controversial strategy known for complicated implementation, latency issues, and duplicate bidding. 

So, which option to choose, header bidding or a waterfall? In fact, you don’t have to abandon the existing waterfall to integrate header bidding. As shown in the post, one of the pros of header bidding is its compatibility with the waterfall method. This hybrid approach when header bidding ‘marries’ a well-set-up waterfall is one of the most profitable programmatic advertising strategies as of now.