Waterfalling is an ads 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.
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In short, this is a technique that publishers use to maximize their profits on 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:
Source: In your Waterfall – How Publishers Monetise their Ad Inventory
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 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 network where they can sell the remaining chunk of the inventory at a lower floor price.
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