Programmatic advertising has averaged 71% year over year growth from 2012 to ‘16 and is expected to grow another 31% in 2017. Real-time bidding, or RTB technologies, have been the primary vehicle for programmatic’s growth.
So, why is programmatic important? You have probably used programmatic methods to buy or sell traffic, directly or indirectly…
…and RTB? It is the primary programmatic method employed and will likely continue to be so in the near future.
This leads us to our first point: programmatic advertising is not synonymous with RTB. Instead, programmatic is the process of using software and algorithms to trade data-rich media while RTB is one method of execution.
What is RTB? Your no-nonsense overview
RTB is the trading of traffic on a per-impression basis in a second-price auction format via ad exchanges. A second-price auction format is where the highest and clearing bid are different.
Therefore, although the highest bidder wins, the second highest bid plus one cent is paid. The rationale for this format is that it prevents the highest bidder from overpaying for the impression.
There are multiple ad exchanges and publishers offer their traffic from one exchange to another until it is sold; this is called a waterfall. The position of each exchange in the waterfall depends on its expected return.
The process is mediated by supply- and demand-side platforms (SSP/DSPs) that represent publishers and advertisers, respectively. From request to an ad being served, the process happens within milliseconds:
The publisher benefits from RTB because no impression is left unsold. In fact, RTB has mostly been used to sell remnant traffic, which is leftover traffic from direct deals. However, it’s increasingly used to sell premium traffic.
Meanwhile, the advertiser benefits from the massive amount of inexpensive, data-rich traffic made available by these exchanges. Benefits aside, real-time bidding has not been without controversy.
RTB: a work in progress
The primary issue with programmatic RTB is its lack of transparency. Often described as a black box, advertisers are concerned about price manipulation and ad placement.
The recent Youtube debacle, where big brand ads were placed next to extremist videos, exemplifies what is at stake when there is little to no transparency. But, advertisers are not completely devoid of fault.
There is consensus within the industry that advertisers have been prioritizing quantity over quality. Because of this, brands, advertisers and media buyers have been willing to operate in the dark.
Publishers are not free from risk either: many use Google’s ad server, which gives priority to their ad exchange. Additionally, real-time demand isn’t taken into account because waterfall ranking is based on estimated return.
Thus, the publisher isn’t guaranteed the highest price for an impression. Nonetheless, there is demand for greater transparency from both parties and versions, e.g. private RTB marketplaces, are gaining popularity, which will increase accessibility.
So, why is RTB important?
As mentioned above, RTB is the primary programmatic method employed and will continue to be so…at least in the near future. Why? It is by far the most accessible method for publishers of all sizes.
Other methods, such as programmatic direct and header bidding, require a scale and resources that present smaller publishers with impossibly high barriers to entry. Likewise, accessibility has improved for advertisers.
Specifically, they have greater access to impressions and at lower prices due to the sheer amount of supply and lower cost of acquisition. However, RTB is also important for a larger reason.
Programmatic RTB has changed the expectations of how media will be primarily traded in the future, be it through RTB or other methods. This not only applies to digital media, but non-digital as well.
Consequently, this calls every party to learn a new language and way of thinking to ensure that they are getting what they expect. After all programmatic, in all its forms, is already happening: are you doing what’s necessary in this brave new world?