Real-Time Bidding Demystified

May 4, 2015

According to a survey by AdExchanger, 61% of programmatic budgets are spent on open exchanges utilizing real-time bidding (RTB). The programmatic channel is responsible for a significant portion of ad impressions, attracting many of the top industry players. With RTB’s increasing sophistication in years to come, understanding the nuances of this complex technology is vital. So, what is it exactly?

Real-time bidding is simply an auction where buyers and sellers transact ad impressions. Each individual impression is auctioned to any number of bidders for the highest price. Like any auction, the demand for every impression depends on its value to buyers, who are all using their own criteria (such as size, vertical, audience, etc.) to make their bids.

And like any marketplace, RTB is full of different players with different interests. On one side, buyers or advertisers are looking for ad space to display their message. On the other side, publishers and websites have ad inventory and audiences they are looking to monetize.

The entities involved in an RTB transaction represent either the buyer, the seller or the marketplace. The involved parties are vast, and represent a range of interests and capabilities:

  • Agency trading desks are the programmatic arms of agencies that manage analytical and targeting data, which is used to bid on impressions on demand side platforms. Trading desks are often shared across large agency holding companies.
  • Demand side platforms (DSPs) sit firmly on the buy side and connect agencies, trading desks or advertisers with multiple sources of inventory and data to better inform purchases and to help advertisers reach their target audience. The gateway into the exchanges, which host aggregated impressions, DSPs enable real-time buys and have the ability to address issues of duplication and frequency that agencies or advertisers can’t handle on their own. DSPs’ value in the ecosystem is the unique bidding algorithm each has developed to manage interaction on the exchange.
  • Data management platforms (DMPs) are data providers that deliver large and varied sets of data to all sides of the market. The most common forms of data that advertisers use when buying on DSPs are demographics, internet behavior, and offline product/service purchase behavior.
  • Exchanges are the center of the RTB ecosystem, where buyers and pools of inventory meet and where the auction actually takes place. Ad exchanges offer tools and reporting services to inform and optimize the bidding process, but they are not responsible for targeting particular impressions and defer that logic to the DSPs.
  • Supply side platforms (SSPs) enable publishers to supply inventory to the exchange demand while maintaining control over their inventory and yield. SSPs employ techniques to encourage a higher initial bid and provide comprehensive reporting technologies that the more sophisticated publishers demand.

Each component of the RTB ecosystem interacts with the others in distinct ways. On the buyer’s side, advertisers outsource their media buying and planning to agencies. Agencies rely on their trading desks to secure the programmatic portion of an advertiser’s media buy. These trading desks will access publishers’ and websites’ inventory on exchanges through the DSPs and place bids on the inventory they would like to purchase. Because exchanges aggregate millions of impressions a minute, advertisers can use DMPs and their audience-targeting data to determine the specific impressions on which to bid.

On the other side, publishers who are selling impressions programmatically provide inventory on the exchanges. Publishers can manage this inventory through SSPs, which allow publishers to set floor pricing, determine which inventory to sell and optimize their yield.

In an informative video, Media Crossing explains how the auction for an impression occurs in 200 milliseconds, filling that ad space before the webpage even fully loads. In that time, advertisers place bids through their DSPs to reach a user based on criteria including demographics and online behavior. The exchange then sends a bid request to those DSPs, and the highest bid wins. Some DSPs will send through only the highest bid, or the top few highest bids. The exchanges then perform any advertiser filtering on behalf of the publisher, and place the winning DSP’s tag or the creative to display the ad.

This rapid process of buying and selling impressions has impacted all players in the ecosystem. The real value of the exchanges lies in advertisers’ ability to sift through billions of impressions to find the relevant users. Advertisers, through their agencies, can cherry-pick the audience they are targeting, and can purchase inventory through one platform to build a full, comprehensive media plan. The benefits carry over to analysis and performance evaluation. When everything is on the same platform, performance measurement is much easier, although still evolving in the programmatic space.

For publishers, monetization and yield optimization are the primary benefits. Typically, publishers provide exchanges with inventory that they were unable to sell directly, allowing for monetization of inventory that would have gone unsold otherwise. This inventory isn’t lower quality, it’s just that digital impressions are perishable. If they aren’t sold prior to serving, the value is lost. Additionally, RTB enables publishers to analyze buyer data to improve pricing and also boosts efficiency. Impressions can potentially be monetized with minimal effort from a direct sales force, with some limitations.

RTB has greatly impacted the ways of the advertising business, but it’s not without issues. Like any new technology, there are tweaks that need adjustment and kinks uncovered as more buyers and sellers use the platform. But RTB is here to stay – now controlling a majority of programmatic ad dollars, its dominance will continue to rise. With innovation requires adaptation. Understanding the complexities and nuances of real-time bidding is the first step to embracing it for all of its impact and as the future of media buying and selling.

Digital & Social Articles on Business 2 Community


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.