Chasing waterfalls? A look into in-app bidding

The mobile industry is a cutthroat environment. To make their efforts worthwhile in the financial sense, the creators and publishers of mobile apps employ a variety of methods. These are especially important since most apps today can be downloaded for free or purchased at a very low price. 

The most popular strategy is placing ads inside the app, offering the mobile app as an advertising platform and earning income with each impression, i.e. every time the ad is viewed by a user. 

There are two predominant methods for allocating ad inventory inside an app to ad sources, each with its own advantages and disadvantages. In this post, we’ll take a closer look at both of them.

Q2 2019 AD LTV BENCHMARKS

The ups and downs of the traditional waterfall method

Traditionally, ads have been served using the waterfall prioritization model. This has been the go-to choice for mobile monetization experts for years. In the waterfall, the app publisher sets a CPM (cost per one thousand impressions) floor and continuously sends requests to every ad source (ad network and/or direct advertiser) in turns until the impression is bought. The ad sources are lined up in a hierarchical fashion, with impressions being served to those bidders who are in the top priority.

When using this method, app publishers rely on historical performance (revenue) data from ad sources in order to prioritize who serves the ad and gets the impression. To be more precise, publishers allocate their inventory from ad source to ad source, cascading down like a waterfall (hence the name), until all ad spaces are filled.

The main advantage of this model is that the entire inventory is sold 100% and no space is left unused. Despite this, the waterfall model isn’t without its downsides. The main disadvantage is that only one ad source at a time is ever given the opportunity to get the impression, making the entire process less competitive.

Besides, lots of advertisers may not get the first bid on an impression unless they have a direct deal with the publisher. In other words, if a particular ad source starts to drive higher CPMs but is lower down in the waterfall, it may never get the opportunity to shine. Consequently, you may be missing out on some of the higher-paying opportunities, leaving a lot of money on the table.

Q2 2019 AD LTV BENCHMARKS

In-app bidding keeps you afloat

An increasingly popular alternative to the waterfall method is in-app bidding, a relatively new model of automated programmatic advertising inside apps. It allows publishers to achieve maximum value for each impression through real-time auctions in which ad sources bid for impressions.

Although it has been the norm in the world of desktop and mobile ad display for some time, it has only recently started gaining traction in the in-app environment. The principles are the same for all platforms – the request is sent to multiple ad sources at the same time, and the highest bid is selected before calling the ad server. This way every ad source has full visibility into each ad request.

The major advantage of this model is the dramatic increase of CPM charged by the publisher, as seen in the desktop and mobile advertising sphere. So it’s safe to expect the same results when deploying it in in-app advertising as well. Also, this model increases overall competition so the publisher never has to risk missing out on a potentially higher bid with higher revenue.

That said, the in-app bidding model has its own challenges. For instance, app publishers usually have to integrate an SDK for every monetization partner they work with.

Also, full automation lacks human supervision, insight, and control that is only available in the waterfall model. For instance, some app developers might not want to leave it to the auction to make all their monetization decisions for them. They may also want to sign a guaranteed deal with an ad network or advertiser to operate side-by-side with the auction if data continuously shows a specific ad source performing well.

Why is in-app bidding replacing waterfalls?

The key reason why developers are increasingly switching from the waterfall model to the in-app bidding one is the fact that it brings more revenue. Namely, the desktop model, called header bidding has witnessed major successes, with publishers experiencing a 20-40% CPM increase since its implementation. 

Moreover, the entire process is fully automated and there’s no need for repeated manual adjustment of ad sources according to performance. As a result, the high operational costs for manually adjusting the waterfall are eliminated.

And that’s not all. The waterfall system wastes precious time triggering a series of ad requests. On the other hand, in-app bidding effectively reduces the process of buying and selling of ad inventory to milliseconds.

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How about using both?

But what if you’re not ready to say goodbye to the traditional waterfall just yet? After all, there are situations when it may still be relevant, depending on the apps, app developers, and deals they might have with ad networks or direct advertisers, like the ones I’ve mentioned above.

So why not use the two models together? Perhaps a hybrid may be utilized which would give publishers more control over the in-app bidding process on the one hand, and eliminate latency issues on the other. More and more platforms are offering exactly this – a middle-ground solution that keeps the publisher in control while still taking advantage of all the perks of the in-app bidding model.

Whichever model you decide to stick with, you’re going to need a good partner to help you stay on top of your monetization methods and efforts. Such a platform should be able to provide you with all the measurements, analytics, and real-time data to see which of your strategies are working and which need a little more tweaking to get it right, and Soomla is one of them.

Don’t let the waterfall take you down

The future definitely belongs to in-app bidding, although in some situations working alongside the old-school waterfall is bound to produce better results. By itself, the waterfall might no longer be the best solution in the changing mobile environment. Therefore every self-respecting app publisher should start looking into implementing the in-app bidding option.

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