/ˈwɔtərˌfɔl/
(Also known as Waterfalling or Daisy Chaining)

Waterfall is a traditional programmatic advertising technique used by publishers to sell remnant ad inventory. In this method, impressions are offered to demand sources, such as Supply-Side Platforms (SSPs), in a sequential order. Each SSP is given an opportunity to bid on the inventory, and if the impression isn’t sold, it is passed down to the next SSP in line. This process continues until the impression is sold or no further SSPs remain.

How the Waterfall Method Works

The waterfall method operates in a hierarchical, step-by-step manner:

1. Publisher Sets Priorities
   The publisher ranks SSPs or ad networks based on factors like historical performance or agreed CPM rates. Higher-priority SSPs are given the first chance to bid on the available inventory.
2. Sequential Ad Requests
   When an impression becomes available, it is first offered to the highest-priority SSP. If this SSP cannot meet the floor price or fill the request, the impression is passed to the next SSP.
3. Impression Sale or Expiry
   The process continues until the impression is sold, or all SSPs have had their turn. Unsold impressions may be filled with fallback ads (e.g., house ads or unsold inventory).

Example of a Waterfall Flow

Imagine a publisher sets up the following waterfall sequence for their remnant inventory:

1. SSP A: Floor price = $5 CPM
2. SSP B: Floor price = $3 CPM
3. SSP C: Floor price = $1 CPM

• If SSP A doesn’t bid at least $5 CPM, the impression moves to SSP B.
• If SSP B also fails to meet the $3 CPM floor, the impression is offered to SSP C.
• If SSP C bids $1 CPM, the impression is sold at that rate.

Benefits of the Waterfall Method

1. Simple to Implement
   The waterfall method is straightforward to set up and requires minimal technical expertise compared to advanced programmatic solutions.
2. Control Over SSP Priorities
   Publishers can prioritize demand partners based on historical performance, ensuring high-value SSPs have first access to inventory.
3. Compatibility with Legacy Systems
   The method works well with older ad server technologies and is still used in certain cases where advanced methods are unavailable.

Challenges of the Waterfall Method

1. Inefficiency
   The sequential nature of the waterfall limits competition, as lower-priority SSPs only see impressions after higher-priority ones decline, potentially missing higher bids.
2. Revenue Leakage
   Publishers may lose revenue opportunities because lower-tier SSPs could offer higher bids if given simultaneous access.
3. Latency Issues
   The step-by-step process increases page load times, negatively impacting user experience and ad viewability.
4. Limited Flexibility
   Waterfalling doesn’t allow dynamic pricing or real-time competition among SSPs, making it less effective in optimizing revenue.

Waterfall vs. Header Bidding

Header bidding is a modern alternative to the waterfall method. While the waterfall calls SSPs sequentially, header bidding allows multiple SSPs to bid simultaneously in real time. Here’s a quick comparison:

When to Use the Waterfall Method

While the waterfall method is less common today, it can still be useful in specific scenarios:

• Fallback Strategy:
  Publishers may use the waterfall as a backup method when other systems, like header bidding, fail to fill impressions.
• Low-Traffic Websites:
  For smaller publishers with limited traffic, the simplicity of the waterfall makes it a viable option.
• Direct Deals:
  The waterfall can be effective for prioritizing guaranteed direct deals over programmatic inventory.

Best Practices for Waterfall Optimization

1. Reevaluate Priorities Regularly:
   Use performance data to rank SSPs or networks effectively and maximize revenue.
2. Set Realistic Floor Prices:
   Avoid setting floor prices too high, as this could reduce the chances of selling impressions.
3. Limit the Chain:
   Too many sequential SSP calls can increase latency and degrade user experience.
4. Transition Gradually to Header Bidding:
   Combine the waterfall method with header bidding as you adapt to more advanced programmatic solutions.

The waterfall method, once a cornerstone of programmatic advertising, has been largely replaced by more efficient techniques like header bidding and unified auctions.

However, it remains a useful fallback strategy or a starting point for smaller publishers.

By optimizing waterfall configurations and understanding its limitations, publishers can still extract value while transitioning to advanced programmatic solutions.