Developers

What is a Waterfall? (And Why It’s Time to Say Goodbye Forever)

by Claire Tak on Feb 25, 2021

Mobile app advertising is undergoing an evolutionary transformation with a big shift away from the traditional approach of the waterfall model. 

What is waterfall mediation? 

A mediation platform helps developers to maximize their ad revenue by communicating and prioritizing demand across different demand sources. It’s useful because it provides an advantage to developers, saving them from having to manage each individual demand source and allows them to diversify the earnings so that if one demand partner underperforms, there are others in its place to show ads to users.

Waterfall mediation was the traditional method of setting up ad monetization that was widely used in the last 10 years in ad tech. 

It essentially is a yield optimization model that delivers ads from networks based on their historical eCPMS. The ad impressions waterfall from one ad network to the other from highest expected CPM to lowest for each ad request.

Essentially, an advertiser will first try to sell inventory directly but if they are unable to do so, will pass the impression to premium ad networks and so on. The inventory will fall down the waterfall until it ultimately gets sold to the publisher. 

Whenever an ad impression would become available, the publisher’s mediation platform would call demand sources one at a time in the order of historical price. 

Traditional mediation based upon waterfalls allows app publishers to sell their inventory to a competing pool of demand partners. Publishers can also manually rank their demand sources in order of preference and typically do this based sequentially on highest eCPM to lowest, which explains the “waterfall” term. 

Disadvantages of waterfalls

If an particular ad network is ranked first, its given preference over other ad networks and has first dibs on responding to a request. This hinders the opportunity to maximize revenue if it does not in fact have the highest paying ad for that particular user.

If a specific ad was already further down in the chain, it would never get called, and thus, the loss of potential revenue. 

Ad networks aren’t allowed to enter the waterfall sequence randomly—they’re in a specific ordered queue which is only based on historical data. Because of this fixed sequence, a potential buyer or in-app bidding partner who is willing to pay more for the user won’t be able to bid on it and can’t compete for the inventory. 

Waterfall vs. In-app bidding

In-app bidding allows publishers to offer their inventory in auctions that take place in real timereating an unbiased auction where all buyers bid on the same inventory simultaneously. Unlike a waterfall which uses older and less precise historical data, In-app bidding allows parters to bid on ads at the same time and unlike a waterfall, the highest bidder always wins. 

The underlying concepts for in-app bidding are fairness, transparency, and efficiency. Media buyers could compete fairly to bid on mobile app publishers’ ad inventory, rather than just a portion of the inventory they’d see based on their waterfall rank. 

This type of unified auction is more efficient and represents a big shift in a move away from waterfalls. 

Benefits of in-app bidding

One big advantage of in-app bidding is transparency. Mobile app publishers are able to see the actual price from demand sources, which results in a better overall understanding of the current market value of their inventory. This helps set more precise prices. 

Another benefit is automation. Setting up waterfalls was a tedious and manual task that required developers and marketers to set up and constantly change the waterfall sequence. In-app bidding provides an easy way to set up, monitor, and make incremental changes with a few clicks. 

MAX helps deliver massive growth

MAX, which is AppLovin’s full-stack monetization solution, saves developers time and effort through automation. MAX provides efficiency to developers by improving retention through cohort reporting, which allows developers to measure the impact of new game features. 

MAX customers are enthusiastic and have been able to increase their average revenue per daily active user (ARPDAU) by 15 to 30 percent. 

Learn more about what MAX can do to grow your business.

Claire Tak is Marketing Manager, Content at AppLovin.