Automated online ad trading, better known as real time bidding (RTB), promises to revolutionise the way we advertise online. While its complex technical jargon may give the strongest mind a headache, no-one can afford to sweep it under the carpet. Madeleine Ross breaks down the RTB monster.
Real time bidding (RTB) is perhaps one of the most bamboozling topics in today’s digital advertising landscape, but there’s no denying its swelling pertinence. In the most basic terms, RTB refers to the automated buying and selling of online display ad space. It happens in real time, based on increasingly large stores of consumer data.
In the words of Google, RTB emerged “at the intersection of data liquidity and inventory liquidity” around 2009 when a swathe of ad exchanges threw their support behind the process. In the scope of the internet’s lifetime it’s just an infant.
“RTB is just learning to walk,” says Rhys Williams, head of media technology solutions at Google. “We are just at the beginning of the journey. All the signals say that RTB is growing and growing.”
While data from Australia is limited, figures from overseas markets indicate he’s right. According to the International Data Corporation’s report ‘Real time bidding in the United States and Western Europe 2010-2015’, RTB-based sales made up 16% of display ad sales in the US in 2012, up from 10% in 2011 and 4% in 2010. That growth rate is predicted to slow, but still hit a substantial 27% by 2015. Europe is heading in the same direction.
Traditional digital media buying works like this: Vendors segment audiences into bundles according to characteristics like behaviour or age, and sell those segments at pre-determined prices. Advertisers are forced to pay the same price for all the impressions in that bundle, despite the fact some impressions may be more valuable or relevant to them than others.
RTB means advertisers pay for only the impressions they want, and publishers get the best prices for those impressions.
How it works
So how does it work? Here’s the abridged version. A user clicks through to a page on a publisher’s website, prompting it to load. The publisher then sends out a bid request to a bank of thousands of potential advertisers with demographic data on the visiting user.
Every user represents an anonymous cookie with a scope of data attached, including gender, income, job level and online buying habits. In simplistic terms, a request might resemble the following: “Our site has lured a user who is a 35-yearold Australian female who recently shopped for baby nappies. How much would you be willing to pay for a display ad on this page?”
Within one second, interested advertisers calculate and submit their bids using sophisticated automated algorithms. A baby care brand might foreseeably bid high, recognising the relevance of their ad to the user, while a beer brand might submit a much lower bid. Bids are analysed by a publisher’s supply side platform, a winner is selected and the ad placed on the site – all in a blink.
This seemingly simple process involves a myriad of steps and players, but within this convoluted RTB eco-system there are three main players:
1. The Demand Side Platform (DSP). The forefront of the RTB eco-system – a technology layer on top of display-buying systems which streamlines the mediabuying process for agencies and advertisers. The DSP calculates the value of an impression based on its characteristics, decides what impressions to bid for and how much is bid. Examples of DSPs are: Adform, Adobe, Brandscreen, TubeMogul, MediaMath, DataXu, Infectious Media and Digilant.
2. The Trading Desk. Whether in-house at media buying networks or independent, the trading desk acts as the middle man between clients and publishers as a vehicle for buying and selling in real time. Eg: Cadreon (IPG), Accuen Media (Omnicom Group), Vivaki (Publicis), The Exchange Lab, Varick Media Management, Xaxis, FunBox.
3. The Supply Side Platform. These help publishers better manage and price their inventory, control how they sell each impression, maximize their advertising revenues and better manage and price their inventory. Eg: Admeld, PubMatic and Rubicon Project.
RTB means advertisers can buy ad space on a person-by-person basis at scale, ensuring messages are of the utmost relevance to those who see them. Efficiency is maximised by letting machines and algorithms do a lot of the optimisation.
For publishers, the process ensures remnant display inventory is utilised, promises the highest possible remuneration for those impressions, and frees up the sales teams to sell premium inventory.
According to News Ltd head of commercial development Jason Barnes: “The opportunity to sell our advertising through real time bidding engages new advertisers with our brands, increases yield, improves efficiency and, in turn, increases profitability.” Operational costs on both sides are slashed. All in all RTB promises efficiency, speed and the minimisation of waste.
According to Jay Stevens, general manager of the Rubicon Project, RTB gives agencies and publishers “unparalleled controls and transparency”. “For the first time a publisher can work with hundreds of advertisers at once with the ability to begin to manage pricing and buy advertising,” he says.
But RTB has had a bad rap over the last 18 months, with concerns raised over the quality of the inventory offered up by publishers and, in turn, brand safety. The system turns on the sale of ‘remnant’ inventory, with perceptions that branded messages will turn
up on less prestigious pages and sites. But RTB inventory platforms generally have controls that allow you to manage what sorts of places you want your ads to appear, including whitelists, blacklists, content categories and sensitive attributes.
An increasingly popular way to avoid these concerns is to engage in programmatic trading via private marketplaces. These allow publishers to make available a segment of their inventory to a specific group of advertisers and implement priority access controls, enabling them to build stronger relationships with advertisers. This gives advertisers and agencies direct access to a pool of inventory.
Overseas, premium advertisers like Nike, Kellogg’s and P&G are already beginning to trade this way. In November, News Ltd announced a partnership with Rubicon Project, which manages News’ domestic real time ad trading, allowing advertisers to leverage programmatic buying of online ad inventory through optimisation algorithms.
Initially, News’ private exchange is offering inventory across 11 categories including lifestyle, business, entertainment, news and sport, across its domestic digital network. The exchange is invite-only with all of Australia’s leading media buying agencies accepting News’ invitation to participate.
We can expect more ‘premium’ inventory to become available via RTB. A lot of concerns over RTB have been the perception that the inventory is poor quality. As publishers strive for increased profits, they will inevitably open more of their inventory to programmatic bidding to save costs.
Another fear is the perception that RTB is fuelling a ‘race to the bottom’ in terms of ad sales strategies and pricing – a fear which Google’s Williams believes is unfounded. “It’s not about driving down costs, it’s not about the race to the bottom, it’s not about
cheap inventory. There are other ways to do that. Ad networks are able to get you inventory at scale at good prices. Audience based buying and driving up performance are the real reasons around RTB.”
The major challenge facing RTB is underdeveloped skills sets within the industry, due to its infancy. “There is no silver bullet or industry best practices. They are still being developed. It is a complicated landscape out there. There are many players, numbers and fragmentation,” says Williams.
Online advertising is growing fast. While TV continues to attract the majority of ad dollars, online advertising saw the biggest increase in the first quarter of last year, according to Nielsen, with advertisers spending 12% more on online ads than they did in 2011.
The bulk of this spend, however, is still spent on search, with display slowly catching up. The IAB’s Online Advertising Expenditure Report revealed that in the three months to September 2012 the online sector grew by 10% year on year, totalling $813.2m.
Within this, search and directories expenditure grew by 15% in the September quarter, compared to the September 2011 quarter, while classifieds advertising expenditure grew by 7%, and general display grew by 1%. Search and directories dominated the sector, capturing 53% of total market share, while classifieds grabbed a 21% share, and general display took 26%.
RTB may be the messiah the display category has been waiting for to send it powering ahead.
So what can we expect in the years to come? As market acceptance increases and data improves, the system will no doubt get stronger and stronger. In its ‘2012 Real Time Bidding Buyer’s Guide’, Econsultancy forecasts that the impending Facebook Exchange will be a gamechanger. Facebook, currently the top US online display ad publisher, will open its inventory to real time bidders this year – an indication of what to expect in the near future from other social platforms.
And, after experiencing the potential of RTB in display, media buyers will no doubt look to do the same in other channels. According to Econsultancy, increased spending on mobile and video is forecast to boost innovation in the RTB space, with video advertising market places increasingly making their inventory available through real time bidding.
And what of the people? Will sales teams and planners become redundant? From all reports, agency models and strategies will need to change to support the adoption of auction-based technologies.