RIP waterfalls: 3 levers to boost ad mediation revenue when MAX kills the waterfall

AppLovin MAX is killing the waterfall on July 16th. While you can still use waterfalls with a few other mediation providers, this is a big, big deal. Essentially, this move takes ad monetization control out of the hands of mobile app publishers in favor of real-time bidding. In return, it offers simplicity, a larger addressable market of advertisers, and — theoretically — more money.

But is that actually true?

I chatted with the co-founder and COO of Wildcard Games, Josh Chandley:

Mediation: more bidding, more money?

Let’s be honest: waterfalls are ancient tech. 

A waterfall is generally a manually intensive tool for selling ads. Waterfalls take a long time to execute, and they totally ignore potentially unknown advertisers who might value specific inventory much more than the advertisers you’re asking.

How it functions:

• I have an ad placement to sell in My Most Awesome Game
• I talk to ad network A: wanna buy it for $50?
• If not, I talk to ad network B: wanna buy it for $40?
• And so on, until I find a buyer

Bidding is way faster: all networks can bid simultaneously. And it opens up my potential ad-buying market to the world, theoretically, so more ad networks can bid on my ad inventory. That should increase my revenue.

But it’s hard to tell.

“I haven’t personally seen a massive improvement in our CPMs or our revenue from real-time bidding,” says Chandley. “I’ve seen a simplification in our processes. But this theoretical incremental revenue hasn’t appeared for us yet.”

And you can’t A/B test waterfall versus mediation, for a bunch of reasons.

First, it’s really hard. 

How do you pick equivalent times and periods? How long would it take to show a difference? How can you isolate for any changes in organic or paid growth? Are the conditions similar between the test periods? How often are you willing to make changes in your app, and play with integrated SDKs?

And, it’s against the law … AppLovin’s law:

“Any ad units… are now being blocked from running any A/B tests or making changes,” says Chandley. “Even though it is still being allowed to run in that waterfall instance, A/B tests and changes have been blocked.”

There’s clearly good money in mediation — you don’t grow your stock price 5X in a couple of years if your profit margin isn’t insanely great — but it’s not clear that the extra cash is trickling down to app publishers.

Mediation is monetization is acquisition

This is all complicated by AppLovin’s position as the premier mediation platform and the premier ad monetization platform for mobile gaming, one of the most critical sectors in mobile apps. 

That position gives AppLovin a great view of both sides of the market, meaning it can price inventory more accurately, perhaps, than anyone else. The result is that who you choose for mediation is no longer just about monetization. 

It’s also critical to your growth engine.

“Mediation is no longer about ad monetization,” says Chandley. “It’s about user acquisition.”

Why?

“When you mediate with MAX… the large bulk of your UA spend goes to AppLovin’s AppDiscovery products,” he explains. “If you move away from AppLovin, you by rule lose access to that UA source.”

Which leads to a hard question. Or a rhetorical question:

““How much better does LevelPlay or AdMob have to be for you to take a 50% reduction to revenue?”

Answer: orders of magnitude.

Alternative answer: impossibly better.

So what do you do when you lose waterfall control?

You can’t build a waterfall. You can’t totally control who bids and how. Mediation manages all of that, and you don’t even really have insight into auction rules or who is bidding.

So what you do instead is you focus on what you can control.

There are 3 levers Handley sees now for boosting ad monetization in the era of mediation.

1. Segmentation
   Who do we show ads to? Who do we not show ads to? What should their ad experience be? What’s the optimal strategy to balance revenue and retention?
2. Ad load and frequency
   Where do we show ads? How frequently do we show ads? What kinds of ads do we show? How do all these parameters impact revenue and retention?
3. Expanding auction participants
   In theory, Handley says, you can have an infinity of ad SDKs now. (Don’t talk to your engineers about this.) This opens up the ecosystem to having a lot more direct SDK connections.

Interestingly, there could be significantly more revenue here in optimizing the ad experience than you’d get from boosting revenue slightly in the move from waterfall to bidding.

One more dose of good news

Theoretically, mobile gaming publishers could be opening up to a whole new ecosystem of advertisers over the next few years. 

There are 2 reasons why:

1. Everyone is a gamer now, so all target audiences available in games
2. AppLovin and others (Unity? Google? Meta) are making progress in targeting those audiences in games

The current scenario is actually slightly crazy.

As Chandley puts it:

“You open Instagram and you see one ad, then you move over to play your game and you see another ad. It’s like, hey, I’m on the same couch. It’s still 5:30 PM. I’m the same dude. I literally just flipped apps.”

If we see progress here there’s an open gateway for 10s of billions of additional advertising dollars to flow into mobile ads. And frankly, I think we’re already starting to: I got an ad for Blinkist in my favorite mobile game just this week.

Much more in the full podcast

If you don’t subscribe to Growth Masterminds, you probably should. We just got rated as a top-10 podcast for adtech and mobile marketing. And we talk to some really smart people.

Check it out on YouTube and all the usual audio channels …

• 00:00 Introduction to App Monetization
• 00:53 Understanding Waterfall and Real-Time Bidding
• 05:59 Challenges and Changes in Ad Mediation
• 13:15 Impact of Bidding on Revenue and CPMs
• 14:50 The Impact of Performance and Revenue Distribution
• 15:17 Transparency in Ad Auctions
• 15:56 AppLovin’s Dominance and Mediation
• 16:30 The Shift from Ad Monetization to User Acquisition
• 20:32 Segmentation and Ad Experience
• 23:15 Expanding Ad Audiences in Mobile Games
• 26:19 The Future of E-commerce Ads in Gaming
• 29:26 Conclusion and Final Thoughts