Web advertising is big business. So big, in fact, that it drives the entire web. Despite Google’s multi-faceted empire, 96% of the web giant’s profits come from advertising. Massive industries have sprung up around digital advertising, and the rise in recent years of smartphones and tablets have only created more moneymaking opportunities.
But the very fact that web advertising is so omnipresent means that advertisers are using a wide variety of techniques to attract those sweet, sweet clicks. In 2014, the name of the game for online advertisers is a system called real-time bidding (RTB). Instead of the classic cookie-driven web ads of the past, most internet advertising companies today rely on complex algorithms to deliver digital advertising to consumers. And if your company deals with the internet advertising ecosystem in any way, odds are real-time bidding figures into your business model.
So What Is Real-Time Bidding, Anyway?
Internet advertising platforms commonly use lightning-fast, real time auctions to serve consumers with ads. These auctions, which take place both on the buy and sell sides, take place (as the name indicates) incredibly quickly. Buyers compete to have their advertisement shown on a publisher’s page, and their bets take a variety of criteria into account. Although the biggest factors are a user’s past web browsing history, their IP address, and the time of day, other considerations such as demographics can be taken into account. Buy and sell bids are placed via algorithms with little human oversight; although there’s a team of experts at both companies involved tweaking models and making sure nothing goes wrong, it’s mostly automated.
This Sounds Very Complicated.
It is. The age of banner ads and dancing babies ended a long time ago, and companies have switched to increasingly complicated ways of pushing advertisements. Although digital giants like Google and Amazon have sophisticated infrastructure for advertisers to reach customers in a variety of ways, most publishers don’t have access to anything as omnipresent as AdWords or Amazon’s web of suggestions. When they offer advertising space fueled by ad exchanges and supply-side platforms, there’s an implicit assumption at work. Briefly, real-time bidding allows advertisers to sell the opportunity to reach a microtailored demographic to the highest bidder.
How Much Money Is There In Real-Time Bidding?
A lot. Market research firm eMarketer estimates that $3.37 billion was spent through real-time bidding channels in 2013, constituting approximately 19% of total display ad spending. The exact numbers depend on who you ask; vendors usually estimate the numbers as being higher, buyers estimate the numbers at a lower count. Either way, it’s massive big business. Even Google is in on the business, with Doubleclick’s in-house real-time bidding protocol.
For both buyers and sellers, the hope is that real-time bidding allows them to skip around reaching customers through publishers and to reach them directly. Advertising becomes increasingly personalized; a user’s Gmail or Facebook activity could lead to ads that follow them from their daily newspaper to their favorite food recipe site to their favorite travel search engine. Certain industries, such as insurance, automotives, and financial services, can display ads that relentlessly target users at specific times of day. It’s generally better to promote airplane tickets on the weekend, when users are planning trips; the workday is best to promote diapers and soda that can be picked up at the convenience store on the way home.
What About This Impression Fraud Stuff?
Impression fraud, and the ad bots that creates it, is a perpetual challenge for advertisers and search engines. Using a sophisticated toolkit that includes fraudulent ads, fake traffic, and even malware, unscrupulous criminals and crooked ad publishers can scam advertisers out of money by billing them for impressions that never actually take place. These impressions still figure into real-time bidding algorithms; they are one of the biggest challenges for advertisers working in the platform.
The Wall Street Journal’s Suzanne Vranica recently cited a estimate by the Interactive Advertising Bureau that 36% of web traffic is considered fake, with most of that traffic originating in advertising fraud. International organized crime builds fake sites and illegally piggybacks on traffic from legitimate sites that generate them profits by collecting payments from advertisers through ad exchanges… profits from web traffic that never strictly existed in the first place. Several large corporations such as L’Oreal, Verizon, and Coca-Cola have publicly admitted that ad fraud has become a problem for them. This has created an opportunity: New startups such as Pixalate are creating innovative (and fascinating) products designed to block ad fraud in real time.
Got It. Now There’s Something About Facebook…
Facebook, through their Facebook Exchange (FBX) protocol, entered the RTB market in a big way in late 2013. It combines traditional real-time bidding with Facebook’s ecosystem; the system is designed for real-time bidding on ads on Facebook based on users’ non-Facebook web browsing activity.
Using FBX, advertisers can buy “sponsored posts” in real time to reach desired customers. The platform has gotten quite a bit of attention from advertisers and publishers recently; one recent industry conference, OMMA RTB, featured numerous conversations about FBX.
Are There RTB Skeptics?
You betcha. Although advertising exchanges naturally push the benefits of real-time bidding, many publishers and advertisers remain skeptical. RTB is only as good as the algorithms that dictate buying and selling of advertising space, and may in any case be less effective at reaching customers and ensuring conversions than other methods. Advertising is an art, not a science; finding the right way to advertise online depends on a massive confluence of factors like what is being advertised and what the target market is. One size does not fit all.
Serial founder Joe Mohen recently wrote in AdAge about what he called an industry so “overhyped that even its vendors are starting to believe their own unsubstantiated claims.” While directly criticizing some RTB practices, such as the tendency of ad inventory to skew towards the lowest price it can possibly sell at, he also noted that it is good for monetizing secondary websites and for reach publishers. But even with the real-time bidding skeptics, the practice has still become an integral part of 2014’s internet advertising ecosystem.
But There Are Advantages…
For advertisers, real-time bidding has some distinct advantages. Making automated bids on ad inventory via algorithm gives companies finely tuned control over their advertising; if changes need to be made due to updated information or a decision to take a new approach, they can be instituted at the drop of a dime. Changing or customizing an advertisement as a campaign involved is logistically easy.
There is also the fact that bills only have to be paid at the end of a campaign, and that RTB allows for more precise control over spending as well. For companies with smaller advertising budgets, RTB might be more feasible for the duration of a campaign.
RTB: The Next Generation
Over the next few years, bidding in real-time is probably going to become a bit more complicated. The holy grail for advertising exchanges and platforms is being able to link a consumer’s home computer, work computer, tablet, and smartphone to a common profile. Even though privacy concerns require these profiles to be anonymized, increasingly sophisticated algorithms mean that ad exchanges will—with a surprising degree of accuracy—be able to guarantee ads sold via real-time bidding will follow users from their computer to tablet. A number of companies like Tapad are currently working in this space.
Smartphones are where the smart money (sorry) is in this space. The ubiquity of smartphones mean that real-time bidding platforms which successfully sell ad space on mobile phones will generate massive amounts of profits. They also give advertisers space in which to avoid a growing trend in the desktop web world—customers using advertising-blocking software like Adblock Plus. RTB is here to stay, and over the next few years will become just as important to mobile as it is to the desktop web.
Updated November 20, 2017.