Real-Time Bidding

March 1, 2018
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Glossary

What is real-time bidding?

As the name implies, real-time bidding (RTB) refers to the practice of buying and selling ad inventory through real-time auctions that take place as ad spaces become available. It often takes place through intermediary marketplaces like ad exchanges or supply-side platforms, which use sophisticated algorithms to automate the whole process. As such, real-time bidding is one of the more common examples of programmatic advertising.

Real-time bidding offers advertisers the promise of a more refined, direct, and effective ad serving process. Through real-time bidding, ads can be served to specific users that fit an advertiser’s priority demographic or profile, all while costing relatively little time, effort, and resources for both advertisers and publishers.

The real-time bidding framework first came into use in 2009 as a solution for advertisers who wanted more control over their inventory purchases. Many industry experts consider real-time bidding a game-changing development in the online advertising system, as it allows for a far more effective and efficient ad serving process.

In 2016, the International Data Corporation (IDC) reported that 34% of all US digital ad sales were carried out through real-time bidding. Early 2017 estimates from eMarketer, meanwhile, projected that the US digital display industry would spend a total of $35.26 billion on programmatic advertising, with 44% of that spending attributable to real-time bidding.

How does real-time bidding work?

A typical publishing platform, such as a website, will have ad spaces that can be filled with ad materials from advertisers. Due to the nature of the web, each space doesn’t just present one advertising opportunity, but many: each instance of the ad space that’s loaded for a site visitor is treated as a separate opportunity for the ad space to be filled. With the advent of more extensive and sophisticated viewer data collection tools, advertisers can bid for use of the ad space whenever a particular site visitor’s attributes match the needs of the advertiser’s campaign.

There are three main components to a standard real-time bidding system:

  • Publisher: The entity that owns the ad inventory up for sale.
  • Advertiser: The entity that wants to display an ad in the spaces (ad inventory) that the publisher makes available.
  • Ad exchange: The technological platform that serves as virtual marketplace where publisher and advertiser meet, match, and complete an ad inventory sale.

There are also two platforms that are often used by the above entities during real-time bidding:

  • Supply-side platform (SSP) technology helps publishers assess, collect, and relay information about a publisher’s available ad inventory.
  • The SSP is designed to automatically collect and analyze data about the current user visiting the publisher’s site. Data can include details like geographical location, age and gender, and so on — information that can help the RTB system sort users into particular groups, demographics, and so on.
  • Demand-side platform (DSP) technology, meanwhile, performs similar functions for advertisers.
    An advertiser’s DSP can house the source files of the advertiser’s ads, along with useful features like analytics reporting and tools for optimizing media spending.

Every time a webpage with ad inventory loads, these three components converge to determine what ads the site visitor sees once the page is done loading. The process proceeds in this way:

  1. The publisher alerts the SSP to a new available impression. The SSP takes this as its cue to gather and parse information about the publisher site’s current user, which it then sends to the ad exchange.
  2. Upon receiving the SSP’s information, the ad exchanges reaches out to demand-side platforms (DSP) and shares the site visitor’s information.
  3. The ad exchange then initializes the auction for occupying the ad spaces that the SSP offered. During the auction, DSPs bid for a chance to display their advertiser’s ads during instances when the website loads for a user who fits the advertiser’s target audience criteria.
  4. The publisher receives the winning (highest) bid, and the winning advertiser’s material is displayed to the user.

All of this takes place in less than 1/10th of a second, or less than the time it takes to load the webpage bearing the ad inventory up for auction. If you need a more visual explanation of the process’ typical flow, check out this diagram:

[diagram illustrating RTB process; source: How an Ad is Served with Real Time Bidding (RTB) – IAB Digital Simplified]

What can real-time bidding do for you?

RTB is a rapidly growing section of the digital advertising industry, and it offers a number of benefits to advertisers.

First, there’s the shift from serving ads on publishing platforms with relevant content, to serving ads to target users over any kind of publishing platform that has ad space up for auction. That means advertisers are no longer limited to sites or publishing platforms with content that’s related to their ads. Instead, advertisers can zero in on members of their intended audience, serving them relevant ads whatever the website they happen to be visiting at the time.

Second, there’s the massive boost in efficiency that RTB can bring.  Thanks to their vastly increased capacity for targeted deployment, advertisers can pick and purchase only the most relevant and valuable ad placement opportunities across a wide variety of publishing platforms. The automation and aggregation enabled by ad exchanges, SSPs, and DSPs means there’s no corresponding need for more ad buyers, deal negotiators, and other human involvement, keeping costs down.

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