In our third installment of our header bidding series, we are going to take a close look at real-time bidding (RTB) and header bidding. These two names often get lumped together and are sometimes incorrectly considered to be two alternative keys to the same puzzle slot, but the relationship between these two is more complex than simply putting pros and cons of each side-by-side. In the world of programmatic advertising, header bidding operates within the scope of real-time bidding, as it serves as a further improvement to RTB, increasing the opportunities for revenue optimization. In simpler words, header bidding is a technique that uses real-time bidding as its base.
Let’s take a closer look at this relationship to understand how these two are connected.
Introduction
In the world of programmatic advertising, real-time bidding is a process that makes the buying and selling of ad impressions in real-time a reality through auctions that take place online, and the winning bid gets to display its ad on a particular ad space. These real-time ad auctions take place via an ad exchange. Several different type of auctions fall under RTB, including private marketplaces (invite-only) and open auctions (where anyone can join).
Header bidding, while related, is a separate process. As we reviewed two weeks ago, header bidding is an advanced programmatic advertising technique where publishers are able to call on and collect multiple bids from various demand sources simultaneously before their own ad server is called. This process helps them maximize revenue by guaranteeing that only the highest bidder is chosen, and makes advertisers compete amongst each other to reach the desired ad space.
This entire process is very fast – around 400 to 800 milliseconds on a desktop computer and 800 to 1200 milliseconds on a mobile device!
From a publisher’s point of view, real-time bidding is definitely more profitable than direct deals, but header bidding takes a step further! Header bidding creates even more competition, driving bids up even further, and maximizing ad revenue. How did these processes come to be? Let’s take a look at the history behind them.
History
Direct, manual deals between publishers and advertisers were the norm in the early stages of the digital advertising world. Here, publishers would normally sell their inventory directly to advertisers at agreed rates. This process relied fully on sales teams and manual insertion orders, taking up a lot of time and effort.
Programmatic advertising then soon arrived and made things smoother by automating the process via ad technology. Despite this new technology, publishers would still negotiate agreements individually, often well in advance, and in bulk.
This practice constrained revenue potential, as publishers found themselves committed to existing arrangements even when more lucrative deals came up. It also lacked the ability for targeted advertising, since it was not possible to predict the specific audience that would encounter the ads.
This is what inspired the creation of real-time bidding. RTB allowed the process of buying and selling ad impressions to become automated, and allowed for targeted advertising – since the ad auctions of real-time bidding take place in the brief moments after a user clicks a link but before the webpage fully loads, it is able to gather user data such as demographics and browsing history.
Additionally, real time bidding created an opportunity for publishers to earn more per impression, especially for high-value audiences or peak times, as advertisers were willing to go all in and compete strongly for specific ad placements or targets.
However, real-time bidding used the waterfall model to manage the bidding process in its early days. As we reviewed last week, waterfall bidding is a process that follows a hierarchical structure where ad impressions are sequentially offered to demand sources based on predefined priority levels, creating a waterfall effect.
These demand sources are usually ranked by either their size or by the average historic yield they have produced for the publisher. This means that an ad network where premium inventory has been sold in the past (for a higher price) will then get first chance on further impressions from the same publisher. But the barriers of the waterfall model deterred publishers from maximizing their ad revenue, had a negative impact on the UX, and created more work for the programmatic team.
Header bidding revolutionized the ad auction process by addressing the inefficiencies of waterfall bidding. The key innovation was the simultaneous distribution of bid requests to multiple buyers, effectively flattening the auction structure.
Header bidding brought many benefits to publishers. These included increased revenue, more transparency, improved UX and SEO results, and more insights on their ad inventory.
According to Statista, in the United States, header bidding has greatly been adopted by the programmatic advertising industry, with 70% of online publishing websites expected to be using header bidding technology by Q1 20225.
Relationship Between Real-Time Bidding (RTB) and Header Bidding
As we stated before, real-time bidding (RTB) and header bidding are connected to each other. Real-time bidding is part of header bidding. While RTB provided the foundational technology for programmatic advertising, header bidding represented an enhancement within the RTB ecosystem. Both of these had a powerful impact on the digital world.
Real-time bidding is the broader technological framework that allows for real-time ad auctions to take place. Header bidding is a specific technique that addressed the inefficiencies of other RTB implementations such as the waterfall model and enhanced the process by allowing for simultaneous bids to take place in real-time.
Header bidding can be seen as a refinement of real-time bidding, designed to maximize the benefits of real-time ad auctions for both publishers and advertisers. It’s a sophisticated application of RTB that has become an integral part of many publishers’ ad tech stacks.
DSPs and SSPs
Now that we have reviewed the relationship between header bidding and real-time bidding, let’s take a look at two integral components of the ecosystem: Demand-Side Platforms (DSPs) and Supply-Side Platforms (SSPs).
Publishers use SSPs to sell their ad inventory to the highest bidder while advertisers use DSPs to bid on ad inventory across multiple sources.
Within RTB, in the waterfall model, when a user visits a webpage, the SSP is what notifies the ad exchange who then reaches out to multiple DSPs sequentially. In header bidding, the relationship between DSPs and SSPs is strengthened by allowing publishers to offer their ad inventory to multiple demand sources simultaneously.
Together, DSPs and SSPs streamline the automated process by facilitating interactions between buyers and sellers in the world of programmatic advertising, ensuring that advertisers can efficiently target their desired audiences while publishers effectively monetize their content.
Price Floors
A price floor, also known as a floor price, is the value below which an advert cannot be sold in an ad server. Floor prices play a crucial role in both real-time bidding and header bidding, as they protect publisher revenue and maintain ad quality. In real-time bidding, floor prices are typically set within the ad server or SSP and have several different functions. First off, they protect revenue as they reject bids that fall below them, and secondly, price floors help weed out low-quality ads if they are set out appropriately.
In real-time bidding, floor prices are typically set within the ad server or SSP and have several different functions. First off, they protect revenue as they reject bids that fall below them, and secondly, price floors help weed out low-quality ads if they are set out appropriately.
In header bidding, minimum price floors are implemented across various demand sources at the same time. This simultaneous approach fosters increased competition among bidders.
Certain header bidding solutions also employ sophisticated algorithms to dynamically adjust floor prices. These consider multiple variables such as the specific ad placement, dimensions, and audience characteristics to optimize pricing in real-time, and maximize revenue!
For example, during periods of high demand, such as Black Friday or seasonal holidays, dynamic pricing algorithms may raise floor prices to capitalize on the increased willingness of advertisers to bid competitively. Conversely, during lower-demand periods, the algorithms might slightly lower the floor to avoid unsold impressions, ensuring publishers maintain steady revenue.
There are many benefits to implementing dynamic price floors, these include:
- Improved revenue for the publisher.
- Real-time optimization of the price floor strategy based on seasonality, user segmentation, custom dimensions, etc.
- Saves time (development, maintenance, optimisation calculations).
- Saves resources (development, maintenance, optimisation calculation, pushing price floors).
- Serves as a counterbalance to bid shading.
- Guarantees a better quality of ads and content for visitors.
- Helps avoid missing out on sales opportunities.
- Helps identify the real value of your ad inventory.
Opti Digital offers dynamic price floor optimization as part of its real-time yield management system. This combines multiple technologies to enable instant pricing decisions and it replaces manual processes with automated and real-time strategy optimizations made to maximise publishers’ revenues in any market environment. Opti Digital’s multidimensional pricing algorithm provides publishers with the best possible price.
Make sure to contact us if you would like to know more about this technology.
Conclusion
In conclusion, real-time bidding (RTB) and header bidding have significantly transformed the landscape of programmatic advertising.
Real-time bidding laid the foundation by introducing the concept of real-time ad auctions for ad impressions. While RTB revolutionized the landscape, its reliance on earlier models like waterfall bidding posed limitations that constrained optimal revenue generation.
Header bidding emerged as a sophisticated enhancement to RTB, addressing these inefficiencies by enabling simultaneous auctions across multiple demand sources. This refinement not only increased competition but also gave publishers greater control over their inventory and pricing, ensuring they could secure the highest possible bids for their ad spaces.
The integration of tools like dynamic price floors further enhances the effectiveness of these systems by ensuring optimized pricing strategies that respond to real-time market conditions. Such innovations protect publisher revenue, improve ad quality, and deliver better experiences for users, advertisers, and publishers alike.
As programmatic advertising continues to evolve, the synergy between RTB and header bidding will likely serve as a blueprint for future innovations, setting a high standard for what is to come.
