Waterfalling is an ad inventory mechanism that publishers use to unload the remaining inventory they could not sell at a premium price. Thus, with waterfalling, publishers sell the remaining inventory at subsequent lower price tiers to maximize profitability.
In short, this is a technique that publishers use to maximize their profits on an otherwise unsold inventory of impressions they have on a web property.
Why do publishers use waterfalling?
Publishing business models primarily make money by selling impressions or clicks to advertisers. However, medium to large publishers handle millions of impressions each month. Optimizing the processes of those “inventories” is critical to maximizing profitability.
Waterfalling, therefore, is a process where publishers manage to sell the remaining inventory, which could not be sold at a premium slot. Indeed, only a fraction of the overall inventory can be sold at a premium slot, and if the publisher didn’t manage to sell the remaining inventory, this would account for lost money.
How do publishers use waterfalling?
Waterfalling consists of a process where ad inventories are divided in tiers based on the bidding of advertisers:
When Publisher A could not sell the whole inventory through the primary ad network, the unsold impressions will go through a second partner ad network to sell that inventory at a lower price to consume the remaining part of the unsold impressions. If not all impressions are consumed at that tier, the waterfall moves to the next partner ad network until the consumption of the inventory.
Simple, isn’t it?
Waterfalling is a complex optimization process
While this process might sound simple in theory, that is complex in practice. At this stage, publishers are trying to maximize their income by looking to sell at the highest rate possible per CPM and to make sure most of the potential ad inventory gets sold.
Therefore, publishers use this method to squeeze as much money as possible from several ad networks. Usually, as a small percentage of an ad impression is sold at a premium price, publishers look for alternative ad networks where they can sell the remaining chunk of the inventory at a lower floor price.
1. Online News Publisher:
- An online news publisher has a substantial amount of ad inventory on its website. To maximize revenue, it employs waterfalling. If premium ad slots are filled, the unsold impressions cascade down to secondary ad networks, ensuring that even the remaining inventory generates revenue.
2. E-commerce Website:
- A popular e-commerce platform experiences fluctuating demand for ad space. Waterfalling allows it to efficiently manage its ad inventory. If certain ad spaces remain unsold, the platform progressively offers them to different ad networks, optimizing revenue generation.
3. Gaming App with Ads:
- A mobile gaming app incorporates ads to monetize its user base. When premium ad placements are occupied, the app employs waterfalling to make use of unsold impressions. These impressions flow down to alternative ad networks, preventing potential revenue loss.
4. Niche Blog:
- A niche blog focuses on specific topics and attracts a dedicated audience. Waterfalling helps the blog maximize earnings from its ad inventory. If premium ad slots are saturated, the remaining ad space is offered to various ad networks, ensuring monetization of all available impressions.
5. Video Streaming Platform:
- A video streaming service relies on ad revenue to support its free tier. To optimize income, the platform employs waterfalling. When premium ad slots are occupied, the unsold impressions are directed to different ad partners, helping the platform generate revenue from its entire ad inventory.
6. Social Networking Site:
- A social networking site has various ad slots throughout its platform. Waterfalling assists the site in efficiently managing its ad inventory. If certain ad spaces go unsold at premium rates, the platform redirects them to secondary ad networks, ensuring continuous revenue generation.
7. Mobile App Developer:
- A mobile app developer integrates ads into its free apps. Waterfalling is used to make the most of ad inventory. If premium placements are unavailable, the app developer routes unsold impressions to alternative ad networks, preventing potential revenue loss.
8. Travel Booking Website:
- A travel booking website relies on ad revenue to supplement its income. Waterfalling is employed to manage ad inventory effectively. When premium ad slots are occupied, the remaining impressions are directed to different ad networks, maximizing revenue potential.
- Waterfalling in Ad Inventory Management: Waterfalling is an ad inventory management mechanism used by publishers to optimize the sale of their remaining unsold ad impressions. It involves selling these impressions in subsequent lower price tiers to maximize profitability.
- Maximizing Profitability: Publishers implement waterfalling to ensure that even the unsold inventory can contribute to their revenue. By selling impressions at progressively lower prices through different ad networks, publishers aim to extract as much value as possible from their ad inventory.
- Publisher’s Business Model: Publishers generate revenue by selling ad impressions or clicks to advertisers. However, due to the large volume of impressions they handle, efficient inventory management becomes crucial for maximizing profits.
- Unsold Inventory Challenge: Only a fraction of the ad inventory can be sold at premium prices. Waterfalling addresses the challenge of what to do with the remaining impressions that couldn’t be sold at a premium slot, preventing potential revenue loss.
- Tiers of Ad Networks: Waterfalling involves dividing the ad inventory into tiers based on advertiser bids. If the primary ad network doesn’t sell all the inventory, the unsold impressions move to a secondary partner ad network, where they are sold at a lower price. The process continues through different tiers until the entire inventory is consumed.
- Complex Optimization: While the concept might seem straightforward, implementing waterfalling is complex. Publishers aim to maximize income by finding the highest possible rate per cost per mille (CPM) and selling most of their potential ad inventory. This involves strategically selecting different ad networks and floor prices.
- Alternative Revenue Streams: As only a small percentage of ad impressions are sold at premium prices, publishers seek additional ad networks to sell the remaining inventory at lower floor prices. This diversification allows them to capture value that would otherwise go unsold.
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