MarTech Landscape: What Is Header Bidding — And Why Should Publishers Care?

Next to ad blocking, header bidding is one of the hottest topics among digital advertisers and website publishers.

It’s complicated and quickly evolving, but it can give publishers more control over — and higher rates for — their ad space. In this article, part of our MarTech Landscape Series, we look at this new approach to site advertising.

What Is Header Bidding?

Short answer: It’s a way for publishers to conduct direct auctions, so as to bypass the inefficiencies that keep websites from finding the best prices for their ad space inventory.

What Are The Inefficiencies?

Longer answer:

Let’s say you’re a publisher with ad space to sell on your website. So, here’s a summary of what normally takes place in milliseconds:

Your site reaches out to its ad server to get an ad. Usually, these direct-sold ads — the ones negotiated by the site’s own sales team — are served up first to the available ad space. After all, these are the clients the site’s salespeople have handled.

Now, the rest of the site’s ad space is made available through an ad server — often Google’s DoubleClick for Publishers (DFP) — in what’s known as a “waterfall” sequence.

It’s called that because the unsold inventory is offered to the top-ranked ad exchange, and then, if it remains unsold, it goes to the second-ranked and so on.

A key factor in the current inefficiency is how these “demand sources” are ranked, which determines the order in which they are offered the unsold inventory. They are generally ranked according to such factors as their buying volume, so the biggest buyer goes first, then the second-biggest and so on.

But the biggest buyers aren’t necessarily the ones that will pay the highest for that ad space. They’re just first in line.

And then there’s the Google factor.

Many of the site publishers utilizing Google’s DFP ad server employ a setting that allows its Ad Exchange (AdX) to outbid any of the winning waterfall bidders by even a penny per CPM, because AdX gets the last bid. This is supposed to maximize yield, but it also puts AdX in a privileged position.

So you can see why site publishers might feel they’re not getting what their ad space is worth. When they utilize waterfall bidding, and when they employ Google’s ecosystem, they might not be receiving the highest price they could.

This arrangement, Index Exchange vice president Steve Sullivan told me, is “meddling with the demand.” It also meddles with the data, he said, because you can’t really tell what your ad inventory is worth.

How Does Header Bidding Remedy This?

Header bidding is a way for the website to directly solicit an essentially simultaneous auction from all the bidders.

The website publisher places some JavaScript in the website’s header. When a page on the site is loaded, the code reaches out to the supported ad exchanges or supply side platforms (SSPs) for bids before its own ad server’s direct sales are called. Bidding is essentially simultaneous, instead of sequential, and focuses on all available impressions, not just the ones available after direct sales.

If they want, publishers can also allow the winning bid to compete with the prices available from the direct-sold ads.

This header bidding arrangement accomplishes several things. All the demand sources are bidding at the same time, which replaces waterfall’s preferential ordering of buyers. Publishers can determine exactly which demand sources are participating, because those are the ones that are called by the JavaScript in the header.

Advertisers get a shot at the best ad inventory. And this process avoids AdX’s last dibs, thus getting around Google’s domination of the ad-buying chain and giving the publisher more flexibility..

Not least, it can also lead to higher rates. Index Exchange’s Sullivan says header bidding can produce “up to a 30 percent lift in rates” for some publishers. SSP PubMatic told me that it has seen publisher gains as high as 50 percent in CPMs.

Potential Challenges, Google’s Response

But header bidding has its challenges.

At the Internet Advertising Bureau’s recent Ad Ops conference in New York City, for instance, Google’s director of product management, Jonathan Bellack, repeatedly mentioned latency problems with header bidding. He contended that the page loads more slowly because of all the processes it is handling.

If accurate — and Google obviously has a major stake here — slower loading is the last thing that publishers need, given the rise of ad blockers that are intended in part to speed page loading by removing the ads.

But in his rebuttal at the IAB conference, AppNexus’ senior vice president for publisher strategy Tom Shields persistently rejected the idea that header bidding always leads to higher latency.

In fact, Index Exchange’s Sullivan told me that “78 percent of header bidding transactions are under 200 milliseconds, [while] only 12 percent of waterfall transactions are.” In other words, he claimed, header bidding utilizing his company’s process has a “much faster turnover” than normal ad bidding.

The reason? “Everyone [is bidding] at the same time,” he said.

Sullivan acknowledged that header bidding is “scary” for some publishers, because it is a “different experience.”

In header bidding, for instance, the site’s ad operations staff have to change code on the website — a process that they don’t handle normally. Publishers also have to carefully choose their header bidding partners, because delays in the ad-serving process could kill the pages.

Google, meanwhile, has taken note of publishers’ desire for alternatives. The tech giant recently launched its DoubleClick for Publishers (DFP) First Look, which offers a “first look” at all impressions for programmatic buyers. But it takes place within AdX, which means Google is still managing the relationship.

In any case, the key drivers here are not going away: the publishers’ desire to have more control over their ad inventory sales, to receive revenue more in line with their inventory’s actual value and to figure out ways to lower page loading times.

With those forces behind it, it’s likely that some form of header bidding is here to stay.

About The Author

Barry Levine

Barry Levine covers marketing technology for Third Door Media. Previously, he covered this space as a Senior Writer for VentureBeat, and he has written about these and other tech subjects for such publications as CMSWire and NewsFactor. He founded and led the web site/unit at PBS station Thirteen/WNET; worked as an online Senior Producer/writer for Viacom; created a successful interactive game, PLAY IT BY EAR: The First CD Game; founded and led an independent film showcase, CENTER SCREEN, based at Harvard and M.I.T.; and served over five years as a consultant to the M.I.T. Media Lab. You can find him at LinkedIn, and on Twitter at xBarryLevine.