Real-time bidding (RTB) has been gaining traction as programmatic advertising gains momentum. In fact, most ad tech platforms today have enabled RTB. It is, therefore, important that digital marketers understand what it is and how they can use it to improve their marketing endeavors.
To understand RTB, let’s start with exploring the first-generation exchange model. In this model, advertisers make bids to purchase impressions. They bid to buy through a static, auction-based system in buckets of 1000 impressions. In static bidding, you pay a fixed or flat average rate for the impressions in a specific bucket. RTB is the opposite of this.
With RTB, you go through dynamic bidding for each impression. Unlike static bidding, RTB gives the ad buyer the opportunity to value each impression opportunity in real-time differently. You get to reject or accept each ad impression within your media plan.
Real-time bidding has made it possible for businesses to buy through ad exchanges and inventory in bulk. Inventory purchasing is now automated and has led to the exponential growth of the RTB market worldwide. RTB is a central part of today’s advertising. In 2020, programmatic digital display advertising that incorporates RTB made up 84.5% of the entire digital display ad market.
Real-Time Bidding (RTB) and How It Works
We can define real-time bidding as an online bidding process where advertising agents, media buying agencies, and marketers transact display advertising inventory in real-time through ad exchanges.
Every time a web user visits a publisher’s website, the website sends an ad request to the vendor. Upon receiving the request, the vendor sets an auction price for that visitor, allowing various advertisers to check out the visitor’s profile and the fixed floor price.
Based on this information, they bid for that impression. The vendor selects the winning bid and the winning advertiser’s ad is displayed to the visitor. This whole process is automated and takes about a 10th of a second (100 milliseconds).
So, publishers auction ad spaces on their websites, advertisers bid for that space, and the winning bidder’s ad is selected and displayed to the website visitor. There are three main parties in this process:
- The supply-side parties (publishers) – who provide inventory to the marketplace
- The marketplace itself (ad exchange or ad network) – Holds the inventory
- The demand-side platform (DSP) – acts on advertisers’ behalf and is the platform where advertisers bid for the inventory in the marketplace.
The highest bidder’s ad is always the one that gets displayed. Therefore, it helps advertisers know what spaces and impressions they should bid for and how much it would be best to bid.
Types of RTB
There are two types of real-time bidding:
Direct RTB allows buyers and publishers to have contact with each other without using a demand-side platform. This approach eliminates third parties and as a result, reduces the overall ad cost. In this setup, the publisher controls the process. In monetary terms, Direct RTB is mainly beneficial to buyers, not the publishers.
The buyer will enjoy lower costs and increased transparency. The publisher sets the minimum price their impressions can be sold to address concerns that they could be overpricing their impressions, given that they control this process. The publisher then decides the type of advertisements that appear on their websites.
In Indirect RTB setups, publishers use a third party to sell their inventory to advertisers. The third-party includes ad exchanges, ad networks, DSPs, and SSPs. The publisher retains no control over any part of the process. In many cases, publishers use indirect RTB only when they’re unable to sell impressions directly to advertisers. While indirect RTB used to dominate the global market, there has been a shift in recent years to direct RTB as more publishers prefer direct contact with ad buyers.
RTB and Ad Exchanges
Ad exchanges work in a similar fashion to stock exchanges. They facilitate, complete, and manage the selling and buying of publisher impressions to advertisers the same way that stock exchanges handle the buying and selling of bonds, stocks, and other securities. The inventory is liquid, allowing publishers and media buyers to come together on the platform and trade it in real-time.
Instead of buying buckets of 1000 impressions at fixed prices, media buyers get to buy individual impressions, meaning, they can better display targeted ads to potential customers even within huge audiences, the majority of whom might have little interest in the advertiser’s product or service. Bidding only for impressions most aligned with their business solutions means that their advertising dollars are better spent. Advertisers also benefit when their inventory is displayed for the right website visitors.
Why RTB Is a Game-changer for Digital Ads
A process that publishers only used to sell off their remnant inventory has become the industry standard in display advertising.
The obvious benefits of RTB include:
- Higher revenue on individual impressions
- Improved ad targeting and remarketing
- Reduced inventory waste
There are additional ways that RTB has revolutionized the advertising landscape for both advertisers and publishers. Let’s explore those ways below:
RTB for publishers
Optimization of floor prices
RTB leverages real-time analytics, allowing publishers to adjust their inventory’s CPM floor prices to maximize revenue. They do so by analyzing the price most advertisers are willing to pay for certain audience demographics.
For instance, a travel website could have set its CPM floor price at $1.60 but realized that most advertisers are willing to pay a CPM floor price of $1.50. Using this information, the publisher changes their CPM floor price attracting more advertisers and earning extra revenue they would not have earned had they not adjusted their price.
More inventory sold at better prices
RTB avails publishers’ inventory to more advertisers increasing the number of would-be buyers of website impressions. As a result, they sell more inventory and often at higher prices, increasing their revenue.
RTB for advertisers
Real-time analytics offers advertisers the opportunity to apply varied advertising tactics to their campaigns and evaluate their effectiveness. This way, they get to choose the strategies bringing the highest ROI. The campaigns run simultaneously giving advertisers insights into the ads and audience demographics producing the best engagement, reach, and click-through rates, and allowing them to make the necessary optimization adjustments on the fly.
Increase ad effectiveness
RTB allows advertisers to altogether scrap some ad campaigns based on the campaign performance analysis they carry out even as ads continue being served to their target audiences. Because RTB is programmatic, its algorithms automatically implement changes, allowing advertisers to quickly change course for improved ad effectiveness.
Recognizing fraudulent inventory
Display ad fraud is a huge concern in the advertising sector. Available statistics indicate that 36% of display ad clicks are either invalid or fraudulent. This results in billions of advertisers’ dollars lost to fraud. RTB analytics coupled with fraud-mitigation technologies are quite effective in helping advertisers identify potentially fraudulent inventory and eliminate it from bidding consideration.
RTB in Mobile
Today’s mobile entertainment and content environment is fast-paced: people are constantly multitasking, on the move, streaming media, watching programming, using apps, and browsing the web. This has created a unique opportunity and urgency for RTB mobile advertising.
With bids completed in milliseconds, only advertisers with the right targeting tools and skills can serve ads in the most targeted way, leading to increased sales. In mobile, where instant reigns supreme, advertisers are leveraging RTB to be present at the exact moment when a potential customer is ready to make a purchase.
Summary of RTB Benefits to Ad Performance
Here is a summary of the benefits of RTB to better ROI and the performance of ad campaigns:
- Creative optimization – The traditional ad serving is quite ineffective in testing and matching the right creatives with consumers. RTB makes this process effective and efficient and allows incredible customization of the creatives and messages served to your target audience.
- Actionable insights – RTB shows you in real-time what is working and what isn’t at the impression level. As a result, you can identify trends, discover new customer insights, and use this information to adjust your ads and ad strategy.
- Yield management – RTB allows you to pay for performance instead of reach because you can evaluate the cost of each impression against the revenue generated.
- Cost efficiency – Through RTB, you can reduce your ad spend while improving the quality of impressions on which you spent your ad budget.
- Retargeting – Impression Level, real-time bidding makes cookie retargeting scalable and more powerful. It helps you to more precisely find and target certain desired customer behavior that often results in conversions.
The Future of Real-Time Bidding
Advertising that’s based on machine learning algorithms is the future. According to Juniper Research, ML-based algorithms will continue to enable improved ad-bids efficiency through RTB networks. RTB ad spend is projected to generate $42 billion in 2021, an increase of $38.5 billion from what it generated in 2016. The popularity of RTB has been growing exponentially in the last few years.
According to PR Newswire, the rapid increase in the use of smartphones and RTB’s improved focus on ROI and performance is driving this RTB uptake among media buyers. By 2024, the global RTB market will be worth $27.2 billion. RTB has cemented its position in the digital display advertising space and remains a testament to the dynamic and thrilling future that the digital advertising landscape has in store for marketers the world over.
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