The purpose of a transparent and successful bidding process is to find the highest paying ad among all demand sources in real time. This requires two things: 1) Giving each demand source equal opportunity to bid for every impression and 2) Allowing for an increased level of competition between demand sources. If these requirements are not met, the result can be lost revenue for the publisher and lost bid opportunities for the advertiser.
An all-bidding integration is ideal for maximizing publisher revenue. However, since some demand sources do not yet have bidders, it is often necessary to combine bidding and waterfall systems. This document provides one example of doing such an integration in a correct way. It also provides one counter example of doing such an integration in an incorrect way that can result in revenue loss. Keep in mind that an all-bidding system will outperform a mixed waterfall and bidding solution so you should strive to move completely to bidding as soon as possible.
An optimal integration allows every bidder to have access to every impression opportunity and makes the existing waterfall more competitive by giving each demand source a better chance to compete for different CPM price levels. Both waterfall and auction run in parallel to reduce latency.
For example: DS1 will compete with both DS2 and DS3 for impressions with CPM values above $20. If none of them responds with a fill, they will compete again for a CPM value above $10 and so on. This way, each impression opportunity has a better chance of fetching the highest price from the waterfall. Then that price from the waterfall can compete with the winner of the auction to determine the overall winner across waterfall and auction.
Using multiple price floors per demand for non-bidders is required because demand sources are given more information about the target price of that particular impression and can make a more informed decision on whether they can serve an ad with the respective minimum value. This more closely simulates a true bidding environment even with waterfall-based demand sources.
One way of wrongly integrating bidding into a waterfall setup is by adding the auction winner as the first demand source in the waterfall and using CPM averages for other demand sources.
Although this setup correctly gives all bidder demand sources access to each impression opportunity, it has several negative results:
The graph below shows how the average is calculated: by taking the number of impressions for each CPM value into account and aggregating all different prices into one static value.
For this example the average of $1.5 CPM is average based on total revenue divided by total impressions. In case this is the reference in a waterfall, all potential CPMs valued at more than $2 (220 impressions for an average CPM of $6.5) will be lost. Moreover, since the CPMs that are higher than $2 will probably no longer fit into the revenue matrix, the average CPM will also decrease in time.
In conclusion, integrating bidders with this setup does not maximize publisher revenue and does not reflect the benefits of bidding.