Just as the industry has got used to programmatic trading, it seems like it’s ready to tear it all down again with the introduction of header bidding. Tech firms as large as AppNexus and Amazon are building solutions, and some people are calling it future of programmatic. But how exactly does this new technology work, and why has it got everyone talking?

Chasing waterfalls
To understand header bidding, you first have to be aware of the inefficiencies that currently exist in most programmatic set ups. Once a publisher with available ad space on its website has fulfilled any direct-sale ads (ones that have been negotiated by its own sales team), the remaining ad space is made available through an ad server, most often Google’s DoubleClick for Publishers (DFP). This is what’s known as the ‘waterfall’ sequence, and while it takes place in a matter of milliseconds, it has a huge impact on publishers and advertisers.

The unsold inventory that is available is offered to the top-ranked ad exchange first. If still unsold, it’s passed on to second-ranked exchange, and so on until the ad is eventually sold. The longer this ‘waterfall’ continues, the more ad exchanges are involved and the slower a page will load.

One of the key inefficiencies in this system is the way in which these ad exchanges, or ‘demand sources’, are ranked, and therefore which ones get first refusal on programmatic inventory. Usually, buying volume is the key deciding factor, with the biggest buyer going first, but the biggest buyers aren’t necessarily the ones that will pay publishers the highest amount for that ad space.

On top of that is Google’s domination of the process. Many publishers who use DFP’s ad server use a setting that guarantees Google’s own Ad Exchange (AdX) the final bid on any and all inventory, enabling Google to outbid any other exchange by as little as a penny on CPM basis. This setting is supposed to maximise yield for publishers, but it also puts AdX in a privileged position ahead of its competitors.

Years of this biased system have meant that publishers and ad tech firms who traditionally find themselves at the lower end of the waterfall are eager to see the programmatic status quo disrupted, and thats just what header bidding promises to do.

Streets ahead
Header bidding does away with the waterfall system entirely and lets websites solicit simultaneous auctions from every bidder, from the biggest ad exchange to the smallest, with the ad space going to the demand source willing to pay the highest price.

The system uses JavaScript placed in the websites header, and then as the site is loaded, the code reaches out to the supported ad exchanges and supply side platforms for bids, before even its own ad servers direct sales are fulfilled. Bidding becomes essentially simultaneous, focusing on all available impressions, not just those left after direct sales, and publishers can even allow winning programmatic bids to compete with direct-sold ads.

The result of this is higher yields for publishers, who are now forcing even the largest ad exchanges to compete for every impression they offer, and better ad inventory for advertisers, who have a chance to access impressions they never would have before. The process also avoids Googles final word with AdX, fighting back against the search giants domination of the ad chain.

“Header bidding has been nothing short of revolutionary for publishers,” says James Prudhomme, managing director for EMEA at Index Exchange. “As a method to integrate web pages with the programmatic marketplace, it has brought transparency to a previously murky eco-system, has eradicated the black box SSP model in favour of open and transparent exchanges, and has ultimately increased publisher yields by as much as 35 per cent.”

Depending on who you talk to, adopting header bidding technology can boost CPM rates by up to 50 per cent, so its easy to understand why publishers are rushing to embrace the technology, especially in the age of ad blocking. However, even though the technology has been around for almost five years, it’s still in its infancy as far as publisher integration goes, and not without its challenges.

Programmatics Wild West
The traditional programmatic system, with its waterfalls and uneven distribution of power, has been fine-tuned and polished over the past decade, and while inefficiencies exist within the system, the tools used to create and maintain the system are standardised, with industry bodies that regulate how they are deployed and plenty of guidance available for publishers.

By comparison, header bidding is still the Wild West. Because the code that is introduced must support and integrate multiple demand sources, it must be tailored to each specific partner the publisher wishes to work with, and so requires custom coding when it is added to sites. At the moment, while there is accepted wisdom on the various ways to do this, there are no defined standards, and each demand source has different needs. Integrating the technology usually requires the development team and ad-ops team at a publisher working together with a supply side platform, ad tech firm or ad exchange.

In addition, there are concerns about the user experience and privacy. Header bidding largely operates within the browser, providing buyers with a large amount of data on the consumer even if they decide not to purchase an ad, and there are worries this information could be subject to data leakage or exploited by malvertising code or fraudsters.

Even if that doesn’t happen, the pressure header bidding places on browsers raises concerns about page latency. Programmatic auctions happen in milliseconds, but consumers are already tired of page loading times being slowed by advertising, especially on mobile. The industry is struggling to meet the consumer demand for pages that appear within three seconds as it is – introduce the more complex, data-intensive process of header bidding and that will only get worse.

While some people contend that the simultaneous auction process actually counteracts the latency issue (according to one study, 78 per cent of header bidding transactions happen in under 200 milliseconds, while only 12 per cent of traditional ‘waterfall’ bids come in that quickly), publishers still have to be careful when choosing their header bidding partners, as even small delays in the ad serving process from one demand source can hold up the process, and therefore page loads.

Google has held up the latency issue as one of the major flaws of header bidding, but as the firm with the most to lose if the process becomes standard operating procedure, many are hesitant to trust the search giant on the topic. Google recently launched DFP First Look, an alternative to the traditional waterfall that offers programmatic buyers a ‘first look’ at all impressions, but it still takes place within AdX, and obeys all the rules Google has already established.

The future of programmatic
So, despite the challenges it poses, header bidding seems ready to truly shake up the programmatic market and address some of the concerns that publishers and advertisers have had for many years, creating a fairer, more level playing field for everyone. Adoption is on the rise, and particularly in the UK, publishers seem keen to investigate the potential of the technology.

“The UK is one of the most advanced programmatic markets in the world,” says Prudhomme. “The Daily Mail was one of the very first publications on any continent to adopt header bidding. Since then, leading publishers like The Daily Telegraph, IDG, Future Publishing and many others have gone all-in and leveraged the methodology as the core of their programmatic strategy.”

With such major publishers taking the leap, what can we expect from the future of header bidding, and programmatic as a whole?

Well, the technology is so far largely being applied to traditional display advertising, and given the rising popularity of programmatic video, it seems like only a matter of time before the same technology is applied to richer, more engaging media.

“I believe that the programmatic video market is poised to be disrupted in the next 12 months in the same way traditional display has been over the past 24,” says Prudhomme. “Header-based integrations will evolve to move more of the computational load onto the server and away from the browser which will further reduce latency and make mobile protocols like AMP and Instant Articles addressable.

In addition, the technology continues to be pushed forward. Header bidding wrappers and solutions like Amazons rumoured cloud-based header bidding platform will aim to eliminate the latency issue, and also make the technology easier to implement at scale for publishers. It seems like the waterfall is destined to be disrupted, and if thats the case, Google needs to prepare itself for what could be a seismic shift in how digital advertising is traded.