Real-time bidding (RTB) has been one of the most popular ways to buy online ad inventory since it was introduced in 2009.

But even for seasoned marketers, this type of programmatic advertising can be a very confusing concept. For one thing, I get intimidated just reading the word “programmatic”.

So let’s summarize what RTB is, how it works, and what are the advantages and disadvantages of it – all without jargon.

What is real-time bidding?

Real-time bidding (RTB) is a type of programmatic advertising in which ad impressions are bought and sold in an auction-style bid. And this transaction all takes place in the time it takes to load a website or mobile app.

Before we dive into RTB, let’s cover a few basics.

An impression where an ad is displayed on a user’s screen is the currency used in RTB. Publishers – that is, the owners of the websites and mobile apps that serve ads – typically charge 1,000 impressions each time the ad receives. Advertisers know this as CPM (cost per mille) and place their bids based on the value of each impression.

How do you determine this value? By rating the user based on your targeting parameters (more on that later).

Are there real-time bidding platforms?

There are no RTB platforms because real-time bidding is a way of buying impressions, not a channel. Still confused? Let’s imagine a real auction.

Imagine you want to bid on a car. You hire someone to go to auction for you – this is your demand-side platform (DSP). The person putting the car up for auction is the publisher and the venue is the marketplace. When you raise your hand to view a bid, you can bid in real time.

To purchase ad inventory through RTB, you’ll need to use a DSP, which is a media buying platform on the advertiser’s side that makes it easy to buy an ad campaign and monitors its performance. Learn more about it here.

How the real-time bidding algorithm works

To understand how the algorithm works, you first need to understand the platforms involved in the process.

On the advertiser side, marketers use DSPs to set up their advertising campaign and track its performance. Publishers, on the other hand, use Supply Side Platforms (SSPs) to list their ad space (also known as ad inventory) and the price they charge. They then meet in the middle at the ad exchange, the marketplace where the real-time bids actually take place.

To determine which ad inventory to bid on, advertisers set targeting parameters. For example, a brand may only want to include users who are in a specific region or who have recently visited their website.

Advertisers, or especially their DSPs, evaluate the advertising potential in real time and decide whether and how much should be offered.

Now that we’ve covered the key elements required to make a real-time bid, let’s go through an example of how it works.

For example, let’s say Silk is a UK-based beauty brand that has just launched a new eyebrow line and is running a campaign. They set up their campaign on a DSP and are aimed at users who regularly purchase makeup products, are located in the Manchester area, and are between 18 and 30 years old. The brand also wants their ads to appear only on websites related to beauty and lifestyle.

A user visits a publisher’s website. The publisher’s SSP sends a bid request to the ad exchange, where Silk’s DSP evaluates the value of the impression. The DSP then determines whether the user meets the parameters specified in the campaign. In this case, the DSP makes a bid.

If Silk has the winning bid, the ad will be shown to the user as soon as the page loads. This process takes place thousands of times on different websites during the length of Silk’s advertising campaign.

Silk’s paid ad manager also monitors its ad’s performance on the DSP to determine if it is reaching the desired audience or if the parameters should be adjusted.

The benefits of real-time bidding

Better tracking

With RTB, advertisers can easily monitor their campaigns without having to rely on providers. You don’t have to go to multiple publishers and ask for reports, you can transfer them to your DSP yourself.

This also gives marketers the ability to quickly switch if their campaign isn’t working as expected. For example, you may find that swapping one keyword for another can improve the performance of your campaign and better target the audience you are trying to reach.

Better targeting

When you buy ads through RTB, you buy one impression at a time. This means that every time a website visitor or mobile app user visits a publisher’s website, you can rate that person’s profile and see if it suits your audience.

This makes for more accurate targeting because you can make sure your ads are only reaching the right people at the right time.

Cheaper

The precision of the real-time bidding algorithm enables marketers to spend their advertising dollars on high-quality impressions.

Too often, brands launch marketing campaigns that only reach part of their target market, so the rest of the budget is wasted on users who don’t match the profile.

Additionally, RTB takes a lot of the manual work out of the online advertising process so marketers can focus on other endeavors.

Real-time bidding challenges

Brand security

Where your ad appears is just as important as who sees it. This is because consumers judge brands’ ads based on the content around them.

A 2019 Ad Colony survey found that 60% of consumers negatively perceive brands whose ads appear near inappropriate, hateful, or offensive content. This can be anything from a website that hosts pirated content to websites that promote hate speech.

Because of the nature of RTB, there is a risk that your ad will appear on a website with content that you do not want your brand to be associated with. However, brands can limit this problem by including certain keywords and websites on a reject list. This protects brands from appearing on websites or mobile apps that do not match their identity.

Ad fraud

Cheq estimated that ad fraud would cost digital advertisers $ 35 billion in 2020, with 10.5% of digital ads reaching bots.

Beyond cost, the increasing sophistication of bots can also lead brands to collect inaccurate data on their campaigns.

Some fraudulent publishers fabricate impressions to steal from advertisers. One way to counteract this is to use a DSP or an advertising network with fraud detection software.

Real-time bids make the online advertising process quick and easy. Marketers can skip the back and forth associated with buying ads and focus on tracking the results.

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