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What header bidding is and why it matters

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March 16, 2016 | 5 min read

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Header bidding has been getting a lot of press recently, but exactly what is it, and why should you care?

James Brown is Managing Director, UK & Ireland of Rubicon Project

Header bidding is a set of technologies that let advertising exchange buyers compete with a particular seller’s direct buyers for that seller’s inventory in a single auction. To activate that auction, sellers implement two pieces of technology: a special piece of Javascript code that loads when a user visits that seller’s website or mobile app, and a special ad tag in the seller’s ad server.

Now let’s explore why header bidding matters.

Ad exchanges were once thought of as a repository for “leftovers”

Digital sellers generally want to maximise the amount of revenue they earn for each advertising impression they serve to buyers. Traditionally, they have achieved this by manually ranking campaigns in their ad servers, with the highest priority going to those campaigns with:

  1. The highest negotiated prices, and
  2. The most customisation required to run the campaign (such as page takeovers)

This type of ranking ensured that those buyers who were willing to pay the highest prices for inventory, and to reserve that inventory ahead of time, got access to seller impressions first.

Where did ad exchanges fit into this scheme? Historically, digital advertising sellers have viewed exchanges as technologies that offer them a way to monetise inventory left over after brands and agencies had already reserved impressions with the seller. Instead of leaving that leftover inventory unsold and not making any money on it at all, the publisher would sell it at a discount to buyers, who vied for those impressions in real-time.

The ad exchange was the technology that facilitated this transaction. For that reason, exchanges were placed at among the lowest priority in the seller’s ad server to ensure they only received buying opportunities after the higher-priority campaigns had been exhausted.

Ad exchanges and automation tech go premium

But there has been a shift in the way digital advertising sellers and buyers view exchanges, and this shift created demand among both buyers and sellers for the header bidding solution.

First, instead of only giving buyers access to unsold inventory, advertising technologies and exchanges are increasingly being used as a mechanism for transacting private marketplace campaigns that are negotiated directly between digital advertising buyers and sellers. These technologies are being used to automate those transactions and make them less cumbersome to implement.

And second, many sellers now understand that some real-time buyers may be willing to pay more for an impression than even their highest-priority direct-sold buyers. This is because real-time bidding technology can dynamically assess the value of an impression for a particular buyer. If that impression is thought to provide a high return on investment for the buyer, the bidding technology will submit a high bid in the hopes of winning that high value impression. This bid may surpass the prices that the seller’s direct buyers negotiated.

Enter header bidding to unify demand and increase revenue

Both of these factors meant that always prioritising exchange inventory below direct-sold campaigns in the seller’s ad server might depress a seller’s revenue. That’s because doing so denies both premium buyers using advertising technologies to transact campaigns, and high-bidding buyers on the exchanges the chance to compete with direct-sold buyers.

Header bidding is one way to solve that problem, and here’s how it works:

  1. The ad automation technology provider sends the seller a piece of Javascript code for their website or app, and a special ad tag to put into a high-ranking slot within their ad server.
  2. When an impression is available on the publisher’s page, that special tag will facilitate an auction within the automation technology that determines the highest-bidding buyer for that impression among all the eligible buyers that technology has access to.
  3. If that price is higher than the prices being offered by the direct-sold campaigns that already exist within the adserver, that buyer will “win,” and the impression sourced from the exchange will be served.

By unifying all demand for seller impressions, header bidding maximises revenue potential for sellers. It also gives buyers a chance to compete for high-value consumers they would not have access to otherwise.

There is still some campaign management required for sellers here. Most notably, they must ensure that they fulfill all the impressions they have guaranteed to advertisers who reserved them ahead of time. Still, header bidding is an important step in the direction of fully automated unified campaigns that maximise results for all parties involved.

James Brown is Managing Director, UK & Ireland of Rubicon Project

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