Real-Time Bidding

What is real-time bidding?

Real-time bidding (RTB) refers to advertisers' buying and selling online impressions through auctions in real time as a web page loads. When an advertiser’s bid wins the auction, their digital ad is instantly shown on the website. RTB takes the work out of advertising by making it easy to place hundreds or thousands of ads online in less than a second.

Since this method is efficient and cost-effective, it’s become a popular way to purchase ad inventory online. 

Real-time bidding is usually facilitated by supply-side platforms (SSP). This software lets publishers sell and display mobile and video ad impressions to buyers in real time. Publishers can make money from these websites by creating and selling ad inventory to marketers on an impression-by-impression, or visitor-by-visitor, basis.

Types of real-time bidding

Organizations can choose between two types of real-time bidding.

1. Open exchange: A public marketplace where publishers auction ad impressions to eligible advertising buyers, making an equal opportunity exchange.
2. Private marketplace (PMP): An exclusive marketplace where publishers offer premium ad inventory to select advertisers.

Basic elements of real-time bidding

For real-time bidding to work effectively, there are basic elements that have to be in place. 

• An advertiser is the company or brand interested in placing an advertisement online.

• A demand-side platform (DSP) is the software used by advertisers to launch ad campaigns.

• A publisher refers to the website that wants to sell ad spaces, the site is often referred to as “ad inventory.”

• A supply-side platform is the software publishers use to make the ad inventory available for purchase. An SSP runs auctions where the highest bidder purchases ad spaces.

• An ad exchange connects the companies who want to advertise with the publishers who want to sell. They conduct the bidding translation in real time by connecting the demand-side platform with the supply-side platform.
• Impressions are the number of times an ad is seen or scrolled past by a user. An advertiser pays for the cost per thousand impressions (CPM).

How real-time bidding works

Once all the basic elements are in place, real-time bidding can occur. 

When an ad impression loads on a web browser, the information about the page and the user viewing it passes through an ad exchange. This information is then auctioned off to the advertiser willing to pay the highest price.

The bidder who wins has their ad loaded into the website instantly. The advertiser uses demand-side platforms to determine which ad impressions to purchase and how to bid on them. 

From the advertiser's perspective, the marketer uses demand-side platforms to set up the ad campaign and track its performance. From the publisher's end, supply-side platforms list their ad inventory and the price to charge. Then, they meet in the middle – in the ad exchange, where RTB takes place.

Real-time bidding example

Clothing Store A is a retail brand that’s running a campaign for its new line of sweaters on its site. It uses DSP to set up a campaign that targets users shopping for sweaters between the ages of 18-35. Clothing Store A wants its ads to show on websites related to clothing and apparel.

User A visits the website for Clothing Store B, which uses SSP to send a bid exchange to the ad exchange, where Clothing Store A’s DSP evaluates the value of the impression. Once the DSP determines User A meets the parameters outlined in the campaign, the DSP submits a bid.

If Clothing Store A wins the bid, User A sees the ad when the page loads. 

This process can happen thousands of times on various apparel websites during the length of time Clothing Store A runs its ad campaign. 

Importance of real-time bidding

Real-time bidding is an important concept to consider for both advertisers and publishers.

Advertisers can experience more efficient targeting. RTB makes it possible to fine-tune the type of customers being targeted, which results in a higher return on investment and more relevant ads.

Publishers are likely to experience an increase in revenue as the inventory is opened to a wider variety of buyers within a competitive auction. They can also get greater visibility into who is buying which inventory, helping them decide where to charge more for premium ad placements.

Benefits of real-time bidding

When real-time bidding is done correctly, it can lead to many benefits. 

• Better tracking: Advertisers can monitor their campaigns more easily without relying on vendors. All of the relevant data about the campaign can be found within the DSP in use. Additionally, marketers can pivot campaigns quickly if it’s not performing as expected.
• Improved targeting: When ads are purchased through RTB, one impression can be bought at a time. Every time a user visits the publisher’s website, the brand can assess the profile of this user to see if it matches the targeted audience. Therefore, companies can better ensure ads are reaching the right people.
• More cost-effective: The real-time bidding algorithm is precise, allowing marketers to spend only ad dollars on high-value impressions that convert. Instead of brands launching campaigns that only reach a portion of their target market, RTB ensures ads find the right people.

Real-time bidding vs. programmatic advertising 

Real-time bidding is typically part of most programmatic advertising campaigns, but not all programmatic advertising use RTB.

Real-time bidding allows advertisers to automatically buy ad inventory, place the ad online, and get impressions within the programmatic advertising campaigns.

Programmatic advertising is the automated process of purchasing and selling online ads. These ad platforms let publishers sell ad space, or inventory, in advance for a fixed price instead of auctioning it off. It’s not fully automated, meaning an individual needs to define the parameters of the ad campaign.