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Header Bidding 101: What Is It and Why Does It Matter?

In this article previously posted on iMediaConnection, VP of Product Johanna Pesso explains the importance of header bidding for publishers.

While most people spent their summer adventuring on family vacations or lounging poolside, those of us on the publisher tech side of digital advertising were busy conquering the new innovative landscape of “header bidding.” Since the term entered our collective conscious in mid-June when AdExchanger predicted it would lead to the “end of the publisher waterfall,” the ad tech industry has been awash with articles and announcements about different companies launching this new technology (also referred to as pre-bid, advance, or tag-less bidding). As the summer fades and school is back in session, it is appropriate (and timely) to educate the industry with a primer on what header bidding is and what it actually means for publishers.

What is header bidding?

In the most elementary terms, it is technical implementation that allows a publisher to receive bids from multiple demand partners at the impression level, before making a call to their ad server. Anyone who has taken an intro to economics course may recall that when demand increases, prices rise. So as more buyers participate in the auction, the market will dictate higher CPMs for the publisher’s inventory.

Graduating beyond the basics, header bidding differs from traditional tag-based buying in that it requires a line of javascript be placed in the site’s header (hence the name). This header script initiates a client-side auction, and the highest bid is sent to the publisher’s ad server where it activates a pre-set line item and can compete with direct sold demand (and also with Google Ad Exchange if the publisher uses DFP with “dynamic allocation” turned on). Whereas a tag-based demand partner would only “see” an impression when the publisher deemed them eligible based upon a pre-determined waterfall, header bidding increases the efficiency of the auction process by allowing partners to bid on every impression.

Why should we care?

I don’t know anyone who does not want to increase efficiency, but with Q4 quickly approaching, publishers need to be strategic and selective with their investments. So why should we as an industry invest in header bidding? It all comes down to the money, and header bidding provides significant lift for publishers. When programmatic demand is able to bid on each impression, it can compete against a publisher’s internal and direct sold demand in real time. Referring back to our basic economic principal, more demand leads to higher yield for publishers.

The basic economics of header bidding

Additionally, header bidding eliminates passbacks. With tag-based buys, when a network or exchange cannot fill an impression (or cannot reach a determined CPM floor), the impression gets defaulted back (or passed back) to the publisher’s ad server to be filled elsewhere. Each of these additional ad calls requires ad serving fees that the publisher had to cover. Header bidding combines demand into a single auction within the ad server itself, thus eliminating passback costs and ultimately improving margins for the publisher.

Would a formula help? Let’s try this one out:

Higher demand = Higher CPMs
Fewer ad calls = Lower ad-serving fees

Higher CPMs + Lower ad-serving fees = More profit

What is the downside?

While there are many benefits of header bidding for publishers, the practice is not without its challenges. As with any new technological solution, there are growing pains and additional learnings that the industry needs to make, and future header bidding iterations will no doubt surpass and outperform those that exist today. The primary obstacles publishers face when implementing pre-bid solutions involve implementation and latency.

Setting up a header bidding partner is by no means a simple task, and Technorati recently found that over 45 percent of publishers are frustrated that their programmatic demand partners cannot compete with each other on an impression-level. Header bidding companies are making the process easier through APIs and aggregation, reducing the headache for publishers who are interested in implementing pre bid solutions.

Once integrated, any additional code in the site header (which loads before page content) can result in increased latency and a poor user experience for site visitors. Header bidding companies have all but eradicated this issue with sophisticated timeout thresholds, so publishers integrating today do not see the same increased load times that were experienced by early adopters.

What’s next?

Despite the challenges that exist, one thing is clear: we are in the season of the header bidder. Publishers across the internet are schooling the competition by maximizing yield without changing their site’s user experience, all with minimal hands-on work required for implementation. The market now needs to study up on the features and benefits of header bidding and embrace the monetization opportunities that header bidding offers to publishers.

Johanna Pesso is Vice President of Product at CPXi.

On Twitter? Follow Pesso at @JohannaP83. Follow iMedia at @iMediaTweet.

68020 Johanna Pesso is a product marketer and business strategist focused on driving B2B user engagement.  As Vice President of Product at CPXi, she is responsible for the ideation, development and adoption of a full suite of ad tech products and services for marketers and publishers.  Johanna is a native New Yorker and earned her undergraduate degree from Washington University in St. Louis and an MBA in Marketing, Strategy and Finance from NYU Stern School of Business.

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