In-App Bidding: Get the Most Out of Your App Monetization Strategy

by Mihovil Grguric, June 21, 2024

Programmatic Advertising and In-App Bidding
What Is In-App Bidding?
The History of In-App Bidding
In-App Bidding vs. Waterfall Bidding
Benefits of In-App Bidding
In-App Bidding Statistics for 2022
In-App Bidding: Best Practices for App Publishers
If In-App Bidding Is So Great, Why Isn’t Everybody Using It?
Top 3 In-App Bidding Solutions
The Impact of IDFA Changes on In-App Bidding
To Sum Up

How exactly does in-app bidding work? Why has it become such a big deal? Is it better than the “old methods” of ad monetization?

I have the answers to all these questions and more.

In this guide, I will take a deep dive into this method of programmatic advertising. I’ll go over everything you need to know about in-app bidding – its benefits, best practices, how it compares to the waterfall model, the best solutions on the market, etc.

Let’s get started.

Programmatic Advertising and In-App Bidding

Over the last couple of years, the world of mobile app monetization and advertising has changed quite a bit.

One of the biggest tech accomplishments of the app&game industry is programmatic advertising.

Simply said, programmatic advertising is an automated way to sell and buy ad inventory.

This is actually an umbrella term.

It includes the two most popular methods for buying and selling ads – the waterfall model and in-app bidding.

How popular is programmatic advertising?

According to PubMatic, today, 66% of in-app budgets go into programmatic or open exchange, while only 34% go into direct buying.

What does this mean for app publishers? On top of other things – more opportunities to capture some of all that money going into in-app advertising.

What Is In-App Bidding?

Every good guide begins with a definition, so let’s start this one by defining in-app bidding.

In-app bidding is a programmatic advertising model that includes two sides: app publishers and advertisers.

In it, app publishers sell their ad inventory in a unified auction, and advertisers bid against each other in real-time.

From the publisher’s perspective, what makes this model special is that they can offer inventory to all demand sources at once.

From the advertisers’ perspective, they get a fair chance to compete on ad inventory at the same time. With some other methods, they would only gain access to a limited percentage of inventory.

The History of In-App Bidding

If you really want to understand in-app bidding, you need to understand its origins.

You’ve probably heard about the term “in-app header bidding”.

If this is the case, you’re probably wondering – what is the difference between this term and in-app bidding?

There is no difference.

It’s just a matter of wording and, well, history.

Header Bidding on Desktop

The phrase “in-app header bidding” comes from the initial idea behind in-app bidding.

The thing is, before this type of bidding came to the world of mobile, a similar model existed on the web.

On desktops, header bidding came to life in 2015. As soon as it appeared, it rocked the existing desktop advertising world.

The thing is, at the time, advertisers got tired of waterfall bidding and Google’s auction rules. For this reason, they started looking for alternatives.

However, header bidding turned out to be much more than just an alternative.

Here’s how it works.

In this model, the web publishers auction inventory in their web page headers in real-time.

For this purpose, they add a wrapper to their websites’ headers.

This allows advertisers to simultaneously compete for a place at a header of a web page. Whoever wins the auction, their code gets incorporated into the header.

As a result of this method, publishers started getting the highest possible price for each impression. In fact, according to Fyber, thanks to this model, web publishers have seen up to 40% higher eCPMs.

On the other hand, the benefit for advertisers was pretty obvious – they got to the top of the page.

mobile

In-App Header Bidding

While all this was happening on the web, the app world stuck with the “good old” waterfall bidding model.

Nevertheless, app publishers and advertisers also started craving something like header bidding.

The problem? There are no headers in mobile apps.

For this reason, it was more challenging to develop solutions for-in app header bidding. Luckily, in the last couple of years, fully functional in-app bidding solutions appeared.

Instead of relying on headers, in-app header bidding works with an SDK integration that generates ad requests for an app.

The ad requests participate in an auction in the cloud with server-side demand partners. Once there is a winning bid, the in-app bidding platform sends out a response to the client SDK.

As you can see, this process is everything but simple. No wonder it was so difficult to develop.

In-App Bidding vs. Waterfall Bidding

There is no talking about in-app bidding without talking about waterfall bidding.

We can look at it as a new vs. traditional relationship.

In this relationship, waterfall bidding is the older, traditional way, while in-app bidding is new and improved.

Traditional (Waterfall)

The waterfall model has been the standard of ad monetization for the past decade.

Essentially, waterfall bidding works just like water flowing down a cliff.

In the waterfall, the ad server calls ad networks in a predetermined order, one by one. This order is based on historical prices and performance. There is also a price floor – the minimum price that will be accepted for the placement.

Then, the requests for bids go down the “cliff” of bidders until one of them meets the price floor.

In this process, it’s not important how much the advertisers are willing to pay for an impression. Instead, historical data has an advantage. As a result, the mediation platform will give an advantage to the ad networks it has previously worked with.

Sounds kind of unfair?

That’s exactly what publishers and advertisers don’t like about it.

In the waterfall model, publishers are potentially leaving money on the table. The thing is, they are relying on the mercy of the first bidder in line to bid for ad space. Even if someone at the bottom of the list would bid more, the publisher never gets to find this out.

A lot of advertisers find this model discriminatory. The way the waterfall works, not everyone gets a fair shot to compete for ad space.

Improved (In-App Bidding)

In-app bidding was created to resolve the issues surrounding waterfall bidding.

This bidding model allows publishers to offer inventory to all potential bidders. This also includes the ones that wouldn’t rank high in the waterfall.

While the waterfall model prioritizes the first bidder, in-app bidding gives the advantage to the highest bidder.

Here, historical data is completely irrelevant.

In the in-app bidding model, it’s important what happens in real-time, not what happened before. To make this happen, it works on the concept of a unified auction.

In the unified auction, multiple demand sources gain access to the same ad inventory. They bid for it in real-time, and the higher bidder wins. This way, the prices can go up quite a bit, resulting in higher eCPMs for publishers.

A true unified auction should have these three characteristics:

Being inclusive for all demand sources
Simultaneously distributing ad requests
Allowing everyone to bid in real-time

At heart, unified auctions aren’t much different from real-life auctions.

Imagine a bunch of millionaires auctioning for something in a crowded room. In this case, nobody cares if someone is a new, self-made millionaire or they come from an “old money” family.

Whoever bids most at the moment wins the auction, and that’s all the wisdom to it.

In-App Bidding + Waterfall Bidding

Despite their differences, there doesn’t have to be a versus in this relationship.

In-app bidding and waterfall bidding can work hand in hand. This mix is called a hybrid setup, and it’s prevalent among app and game publishers. According to Business of Apps, hybrid setups are dominating the market in 2021.

Now, let’s go over how hybrid setups work.

This simplified, 5-step process should give you a general idea:

If an app requests an ad, the request first goes through the process of in-app bidding.
The server determines the winner of the auction (the highest eCPM).
The ad mediation network quickly runs a check of ad networks in the waterfall model to see if there is a better offer (higher eCPM).
If there is no higher bid, the winner ad runs instantly.
If the waterfall contains a higher bid, this ad will run first.

Sounds great, right?

This kind of solution allows publishers to get the best out of both worlds. With this setup, they should achieve the highest revenues regardless of where the winning ad comes from.

The only problem is, from the tech side, the hybrid setup is difficult to implement. In it, it’s most important to achieve that both of the systems fight for an impression simultaneously, which is challenging.

Since most of the solutions that support hybrid setups have appeared over the past year, they are still relatively new. For this reason, it’s still early to tell how well they work and how effective they are.

Benefits of In-App Bidding

In-app bidding brings great benefits for both parties in the ad exchange – publishers and advertisers. Even app users can feel its advantages.

First, let’s take at what publishers gain from in-app bidding.

Higher Demand (and Revenues)

In an in-app auction, multiple demand sources bid in open access, real-time auction. For this reason, publishers can expect more demand sources bidding for impressions.

In other words, more competition among advertisers.

This should also bring publishers more high-paying bidders.

As the demand and bid density increase, this should result in more revenue for the publisher. Looking at metrics, publishers should see increased eCPMs and ARPDAUs.

Easier to Maintain

Generally, waterfall bidding requires more maintenance than in-app bidding. Some publishers even manually optimize their waterfalls based on running reports. They analyze historical data and adjust how demand sources rank in the waterfall.

Sounds exhausting?

It is.

Unlike waterfall bidding, in-app bidding isn’t nearly as demanding. What matters here is real-time pricing, not historical data.

In this model, the buying/selling process is completely automated. This gives publishers more time to focus on other important things concerning their app.

Increased Inventory Value

In the in-app bidding model, premium inventory is sold early on to the highest bidders.

Consequently, this makes the remaining inventory more desirable. As a result, the prices of the unsold inventory should increase.

Increased Fill Rates

It’s important to fill up as much ad space as possible.

The most obvious way to increase fill rates is to use multiple ad networks. Whenever one ad network fails to fill in ad space, another one probably will.

However, in the waterfall model, there is always a chance that no ad network will meet the set price floor.

In this case, ad impressions are left unfulfilled.

With in-app bidding, the chances of this happening are much lower.

Since it involves a bigger competition, there is a better chance a publisher will have bids for each ad impression.

Better UX for Players

Another issue that comes with waterfalls is latency. And, of course, a poor user experience that comes along with it.

This can be a big turn-off for app users.

When users reach a video ad placement that doesn’t load quickly, they may get impatient and exit the app. If this happens, the ad request doesn’t get filled, and the publisher earns zero revenue.

In-app bidding helps publishers with this as well. The thing is, in comparison to the waterfall, there are fewer steps in the process of ad serving. Therefore, ads can load faster. With a decreased latency, app users can enjoy a seamless ad experience.

More curious about the positives for the advertisers? Coming right up.

Equal Access to Premium Inventory

Every advertiser dreams of the same things – access to quality inventory and quality users at scale.

These are also their biggest challenges.

In the waterfall model, some advertisers will always lack access to inventory and userbases they would like to see more of. Because of historical data, advertisers are treated unequally by default.

On the other hand, in-app bidding gives everyone an opportunity to reach the audience they want to reach.

In this model, all advertisers get a chance to respond with a bid for any ad request. As a result, they gain access to all of the publishers’ inventory. Hence, they can reach all of the users that consume it.

Of course, as long as they are willing to pay for it.

More Transparency

In-app advertisers want to have a clear understanding of their current and future possibilities. They want to be able to estimate, predict, and scale their user reach.

With waterfall bidding, this is quite difficult. This model is very variable, which makes it hard to make precise predictions.

In-app bidding, on the other hand, is much more transparent.

Since all advertisers get equal access to inventory, they also get higher visibility of available inventory and audiences. According to their campaign goals, they can then decide to invest more in something they believe will work for them.

In this case, their decisions aren’t random and based on guesswork.

Instead, they can make informed, data-driven decisions.

In-App Bidding Statistics for 2022

What better way to prove the benefits of in-app bidding than to run some numbers?

Here come relevant, up-to-date statistics all publishers and advertisers curious about in-app bidding should know about.

Publishers report that header bidding helped increase their overall app revenue by 30% to 60% more than the waterfall. (AdProfs)
In-app bidding can decrease ad latency by 38% to 88% in comparison to the waterfall. (Facebook Audience Network)
Video in-app header bidding helped 61% of publishers maximize ad revenue. (PubMatic)
57% of app publishers reported increased fill rates from video in-app header bidding. (PubMatic)
Upon incorporating bidding, publishers usually see ARPDAUs rise by 10% to 30%. (Facebook Audience Network)
In the second quarter of 2020, the global ad spend on in-app bidding grew by 26%. (Statista)

In-App Bidding: Best Practices for App Publishers

When it comes to in-app bidding, most of the hassle comes down to one thing – choosing the right solution. You shouldn’t judge the in-app bidding solutions by their fancy slogans or websites.

As we all know, looks can be deceiving.

For this reason, it’s incredibly important to do your research before choosing an in-app bidding partner.

Besides choosing the right partner, you should also consider whether in-app bidding is even right for you. Moreover, you need to learn how to properly analyze data in this model.

Here comes a list of best practices every publisher should consider before transitioning to in-app bidding.

1. Look for Diverse Demand Sources

When an in-app bidding solution covers a big number of mediated networks and a big demand-side marketplace, it fulfills its purpose.

For this reason, you should make sure there is a sufficient number of demand sources competing in your auctions.

According to Facebook Audience Network, this can be achieved by working with at least three demand sources. If you use multiple ad formats and deliver them across different locations, you should aim for more.

This should be done regardless of relying on a mediation partner or an in-house mediation solution.

Only when this kind of diversity is achieved is there also healthy competition. If you’re lacking demand sources, you’re endangering your fill rates (and revenues).

2. Quality Reporting Is a Must-Have

How will you even know if an in-app bidding platform is working as promised? The answer is simple – reporting.

When it comes to reporting, do NOT settle. In-app bidding solutions should bring you transparent and granular reporting.

From these reports, you should be able to see all demand partners, as well as plenty of auction-related data. With this kind of data, you will be able to get actionable insights and uncover potential growth opportunities.

Curious about which metrics you should track in the report? Skip to best practice number four.

3. Make Sure the Solution Has the Right Tools

Okay, the reports gave you some fascinating insights that you should do something about.

What can you do?

Well, it depends on the tools the in-app bidding solution is offering you.

A good in-app bidding platform should bring you tools that allow you to manage demand partners. Moreover, with it, you should be able to optimize traffic distribution at a placement level.

Another important set of tools for these platforms are audience segmentation tools. These are the tools that optimize inventory pricing in real-time. With them, publishers can understand the real market value of their inventory.

Only with these kinds of tools can you actually act on the findings you get from reporting.

in-app bidding reporting metrics — Source: Chartboost

4. Learn How to Read Metrics

Ever since the waterfall model was introduced, CPMs have been the ultimate success metric.

Everything else was less important.

However, in the in-app bidding model, the main focus is on another metric – ARPDAU (average revenue per daily active user).

Unlike CPM, this metric measures the overall fill rate and revenue, not the performance of each ad network.

By tracking ARPDAU, you can easily evaluate performance. Simply look into your app’s ARPDAU before and after incorporating bidding.

In this process, you may notice that the CPMs for some ad networks decreased.

Don’t panic over this.

This usually means that those ad networks previously had access to high-value users due to their top positions in the waterfall. In the auction system, these networks have access to all impressions. Therefore, they are also gaining lower-value users.

This may negatively impact their CPMs, but overall, it should have positive effects on your ARPDAU.

This is why removing price floors for bidding networks is of key importance. Sure, having them can increase CPMs, but they can bring lost impressions and ultimately – decrease total ad revenue.

5. Test Different Solutions

You can never be completely sure that you’ve picked the best in-app bidding solution for you.

Therefore, even if you’re already working with an in-app bidding platform, it’s not a bad idea to A/B test other solutions.

Some publishers use multiple in-app bidding solutions at the same time, and this approach works for them.

Others don’t go all-in into bidding. Instead, they use the previously mentioned hybrid approach.

6. Recognize Your Needs

Switching to in-app bidding is not necessarily a good idea for all publishers.

Here’s the thing.

A lot of publishers have previously invested in their own in-house mediation solutions. Others have established reliable partnerships that help them with ad monetization.

If this approach works for these publishers, it may be more effective to stick to the existing solutions than embrace in-app bidding.

If In-App Bidding Is So Great, Why Isn’t Everybody Using It?

I’m sure some of you have this question in mind, and it’s completely valid.

There are a couple of factors that have been holding up widespread adoption of in-app bidding.

Let’s go over them.

Not Everyone Is Open to Collab

In the early stages of transitioning to in-app bidding, a lot of companies chose sides. When this happened, many of them decided they won’t let other players on the market use their bidders.

As a result, many in-app bidding solutions on the market only collaborate with several chosen partners. In these systems, the partner companies are the only ones participating in their auctions.

As a result, their advertising opportunities can’t be maximized.

Implementation Difficulties

A lot of app publishers are skeptical about completely switching from waterfall to in-app bidding.

As I mentioned earlier, a lot of them are trying out a safer zone first – hybrid setups. In these setups, waterfalls and in-app bidding work together.

This seems like the ideal transition strategy. For this reason, many publishers decide to start with it.

Yet, it’s wildly complicated, even for people who know a lot about ad monetization.

For this reason, a lot of publishers ditch the idea of in-app bidding during the integration process.

This is not the only implementation issue publishers face.

By the same token, integration of bidding involves some significant client-side changes. Testing these changes takes time, so this can also be a reason for publishers to back out.

Relatively New Solutions

In-app bidding has not been present for a long time. Therefore, a lot of in-app bidding solutions are relatively new and are still being improved.

Consequently, a lot of these solutions still come with certain limitations.

For example, some solutions don’t support all the prevalent in-app ad formats. Instead, many of them focus on one particular ad format. For example, on interstitial ads. Not all of them cover, for example, rewarded video ads or playable ads.

Since more and more app publishers are using a mix of ad formats to monetize their apps, this is a significant issue. For example, in mobile games, we can frequently see a blend of interstitial ads, rewarded video, and banner ads.

Therefore, if the in-app bidding solution doesn’t support all the ad formats the publisher uses, this makes ad monetization more difficult.

The Impact of IDFA Changes on In-App Bidding

In 2021, the app&game business was heavily impacted by IDFA depreciation.

Starting with iOS 14, publishers can collect the users’ “identifier for advertisers”, but only if they explicitly say yes to that.

IDFA changes affected all aspects of the mobile app advertising landscape.

This, of course, includes ad monetization.

With IDFA changes, historic ad network performance became less relevant. And as I mentioned earlier, in the waterfall model, historic data is the king.

As a result of IDFA depreciation, waterfall management on iOS became more complex. According to Facebook Audience Network, “waterfall powered systems are poorly placed to maximize earnings for publishers in this environment”.

All of this made a lot of publishers turn to in-app bidding.

Another reason why this bidding strategy got even more traction is because of the Facebook Audience Network itself.

In 2021, this app monetization platform became a bidding-only platform. For this reason, all the apps on the platform got deadlines to transfer to in-app bidding.

Even though this was planned for years already, IDFA changes additionally accelerated this transition process.