Most recent update: September 2023
This article was originally published in July 2018 and is periodically updated to keep it accurate and current.
Ad waterfalls, also known as daisy chains, are used to optimize revenue from setups with multiple demand partners. While largely replaced by more efficient strategies such as header bidding, waterfalling is useful when a non-header bidding partner has high CPMs but limited fill.
Why waterfall ads?
Waterfalling increases the advertiser’s — and publisher’s — chances of selling impressions to the highest-performing partner. A publisher who uses AdSense, a 100% fill solution, may receive a lucrative campaign that pays more for certain impressions. The digital advertiser wants to give the premium campaign the chance to buy every impression, but still wants to ensure that ads are served for the requests that the premium campaign doesn’t fill.
The simple solution to this is a pass-back tag. The premium ads are configured to call an AdSense tag whenever they see a request that they can’t fill at the agreed price. This would look like this:
In this example, the black bar represents all ad requests. The premium campaign fills a proportion of them (Green) at a high CPM, then passes the remainder (Orange) back to the remnant network to fill. The idea is to give the premium campaign a look at every ad request, so that it can serve as many impressions as possible at a higher rate.
Looking to move beyond waterfalls? OKO provides fully managed Header Bidding and Exchange Bidding for publishers, delivering more demand through a more efficient auction. See how we earn publishers more money here.
Do waterfalls make more money?
Waterfalls aren’t ideal, but they can help maximize yield from multiple demand sources of serving ads. For much of the history of ad operations, waterfalls were the primary tactic of yield optimization, so they’re obviously not without advantages. By putting some numbers to the example above, the value becomes clear:
- The premium campaign fills 20% of impressions at an $8.00 CPM
- The remnant campaign fills 100% of impressions at a $1.50 CPM
- 1,000,000 ad requests are made
Without a waterfall we can give either campaign all of the impressions. Here is how the revenue compares from those options with the waterfall /daisy chain approach:
Without a waterfall, we can give either campaign all of the impressions and more efficient CPM rates. Here’s how the revenue compares from those options with the waterfall/daisy chain approach:
- Remnant campaign only: The remnant ads receive 1,000,000 requests and serve an impression every time (100% fill). At $1.50 CPM, this yields a total revenue of $1,500.
- Premium campaign only: Premium receives 1,000,000 requests and serves 200,000 impressions (20% fill). At $8 CPM, this yields a total revenue of $1,600. Only a slight improvement over the remnant campaign – see our explanation of when a $2 CPM beat a $4 CPM. (Read more here)
Waterfall from Premium to Remnant campaigns: Premium still received 1,000,000 and serves 20% of these to yield the same $1600. This time, the remaining 800,000 requests are filled by the remnant campaign at $1.50 CPM generating an additional $1,200. Total revenue for the same 1,000,000 impressions is $2,800.
The problem with ad waterfalls
Waterfalls/daisy chains are better than not optimizing ad demand, but there are limitations with the approach. Key among these are:
Problem 1 : Passbacks lose impressions
Ad servers and ad networks are not perfect – either the parent or child tag might be slow to play their part, there could be a network delay, or the ad server being in use could potentially slow things down further. Extra latency at any stage can lose potential impressions. And the truth is, that happens at every step — the more partners there are in the daisy chain, the more impressions you will lose.
Adding another partner into the example shows the effect of the passback process and where these impressions drop. How big those losses are, will depend on the partners involved.
Problem 2 : Publishers don’t always know the CPM until after the ad is served
The biggest issue with ad waterfalls is publishers often want to traffic ads where the CPM is not fixed. When working with networks, the CPMs are usually set dynamically. The solution to dealing with this issue in waterfalls is to use historic averages – see how to minimize inaccuracies in “Three bad ways to set CPM rates in DFP (and one good one).”
Actual CPMs vary wildly from one impression to the next. Trafficking based on historic averages almost guarantees instances where a high bid could’ve been made by a partner who was too far down the chain to get a chance to have open bidding. Cue header bidding.
Problem 3 : Waterfalls are time consuming to maintain
Each step in the waterfall needs to be monitored and revalued in the ad exchange. If CPM rates change or impression discrepancy fluctuates, the value of that partner will change and the trafficking should reflect that. If those changes result in a partner no longer justifying their position in the chain (or deserving a better one), then it can be far from simple to reconfigure.
More efficient approaches
The long reign of ad waterfalls as the king of yield optimization methods has definitely now passed. Header Bidding and server to server bidding solutions like Exchange Bidding now offer greater efficiency. But, while there are fixed CPM campaigns to be trafficked, ad waterfalls will continue to be a viable option in the right situation.
OKO provides ad monetization for publishers, with access to premium demand, exclusive data-driven optimization opportunities, and expert one-on-one support. Learn more at OKO.uk.