Unpacking Header Bidding: The Road Ahead for Programmatic's Top Trend

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Credit: Illustration by Chris Whetzel for Advertising Age
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Explaining how programmatic advertising works can be problematic.

The technology has bestowed new powers on buyers and sellers of digital ads, but it has complicated the process to such a degree that even those who understand it best struggle to describe it clearly. It's need-to-know stuff shrouded in confusion.

The latest essential trend for advertisers and publishers to comprehend is header bidding and header bidding wrappers, technology that's overturned the status quo. More importantly, the philosophy behind it has already spilled into the open mobile web and video. Eventually, it may also inform ad sales in apps and over-the-top TV.

OK, so what exactly is it?

In short, header bidding allows publishers to choose which partners they want to work with. These partners, such as OpenX and AppNexus, each represent a large group of marketers who want to advertise on publishers' websites. With header bidding, everyone bids at once, which often drives up the price and in turn gives publishers more money. At the same time, it gives advertisers a more even shot at the inventory they most want.

The bidding process always occurs as a page is loading. With header bidding, publishers can set a time limit on bids, potentially keeping impatient web surfers from bouncing away. Impressions are also sold individually, and not in the groups of 1,000 on which CPM ad rates are predicated. Publishers previously did not have this much control.

There are other benefits, too, as publishers get more information about how much various partners would pay for given impressions.

"The data publishers are now getting to tell a story and help them understand the 'why,'" said Andrew Casale, president-CEO of ad-tech company Index Exchange. "In certain cases, the 'why' is if the ad placement is below the fold, then the viewability score is going to be low, and the market will value that at a lower price. Publishers are then responding with that data and instituting changes to the way their websites are designed."

"More transparency is leading to better valuation with media because we're getting to a more equitable balance between what the market values and how they price it," he added.

You said "status quo." What was it?

Header bidding upended the waterfall auction, which has long been the standard way of buying and selling ads. Generally speaking, publishers do not get to choose their partners in waterfall auctions. Instead, partners are placed into tiers based on how much money they have spent historically. The more they've spent, the higher the tier they occupy.

When an impression goes up for auction, it is first offered to the highest tier; if that tier doesn't bite, the same impression is pushed down to the next tier. This repeats until someone makes a bid. But the process doesn't always get the publisher the true value for their impression. Nor does it give advertisers equal footing to bid on the impression they want. There may be a buyer in the next tier down, for example, that would have bid more on an impression than the buyer that got to it first.

"The waterfall is a hierarchical and linear approach to determining which ads get served to each user on our network," said Andy Blau, senior VP-chief business officer at Time Inc. "For example, our directly sold ads are delivered first, followed by other sources of revenue such as programmatic advertising. The inherent deficiency in this approach is that the hierarchy does not optimize our inventory based on price. With header bidding, the entire process is optimized to ensure that advertisers see all impressions and have the ability to pay a higher price for higher valued visitors to our ultra-premium content network. Header bidding puts more of the buying control into the advertiser's hands with price being the ultimate filter."

What about Google? I keep hearing "Google" when people talk about header bidding.

That's because it is near-impossible to explain header bidding without talking about Google and its DoubleClick for Publishers platform, where websites offer their inventory to buyers.

Header bidding rose to prominence because most publishers work with DoubleClick and thus operate under its rules. Publishers who have adopted header bidding still work with DoubleClick and still see a decent chunk of their revenue come in that way.

Yet Google's system allows it to see and bid on all of a publisher's inventory. This gives Google a tremendous advantage over competitors like OpenX and AppNexus, among many others, as Google gets to cherry-pick premium inventory, something top advertisers want badly.

With header bidding, a publisher's partners cut straight to the front of the line and bid on an impression all at once and without Google. After a winning bid is selected by a publisher it is sent to the ad server, which in many cases is Google DoubleClick. Though Google then has a chance to beat the winning bid, it seldom does when header bidding is being used, said Sam Cox, group product manager for AdX buy side and policy at Google. Meanwhile, widespread adoption of header bidding has led Google to offer a similar service for its publishers, but that product is still in testing.

What's the catch?

Previously, publishers looking to adopt a header bidding solution had to prepare themselves for a long, messy and complicated process. Not all publishers have the engineers and resources to deploy it, either. More importantly, the more partners a publisher has, the longer the page-load times. There are also instances where a marketer can bid against itself by participating in more than one "partner" group.

Earlier this year, however, came the debut of the header bidding wrapper, an evolution of the previous technology. Through the wrapper—which is also known as a container or framework—installation and management is easier, publishers can have more partners without impacting page load times and, overall, security is better.

So, what's next?

At the risk of making this discussion seem like a waste, the actual term "header bidding" is likely going to go away in the near future. Header bidding is made possible by adding a tag in the header of a publisher's website. Although there isn't a header in apps, header bidding precepts of transparency and competition are moving into that space. Headers don't exist in video players, either, but the same thing is happening there.

"What I thought was stupid with real-time bidding markets is what everyone else thought was stupid, which is calling things in sequence," Mr. Cox said. "And any sequence is too much. Now, it's more about hitting everything simultaneously and making better decisions."

Mr. Cox said some media players don't like this concept because they want to protect their sales team, for example. "But how do you know they aren't doing well if you don't have competition against them? I think we are seeing a change in the underlying philosophy behind the media business to a place that is really exciting."

"And I think that is something we should embrace," he added.