Menu
The advertising industry has been going through an evolving phase for a long time now. More advanced technology-driven methods are now replacing traditional buying and selling online ads. One such approach is Real-Time Bidding (RTB).
RTB is an automated process for buying and selling ad inventory in real-time auctions. It is quickly becoming the preferred method for digital advertising.
According to a report by IMARC Group, it is estimated that the global real-time bidding market size is expected to reach US$ 43.8 Billion by 2028, exhibiting a growth rate (CAGR) of 22.5% during the forecast period of 2023-2028.
In this guide, we will explore the world of RTB, its importance in digital advertising, how it works, and different types of auctions.
RTB is an automated method of buying and selling ad inventory in real-time auctions. It allows advertisers to bid on individual ad impressions as they become available, , and the highest bidder gets their ad displayed.
This process occurs within milliseconds, and the winner’s ad is displayed on the website or app that is being visited. RTB is a technology-driven process that maximizes buying and selling ad space efficiency.
RTB eliminates the traditional manual process of buying ad inventory, which is time-consuming and less effective. It allows for more precise targeting, better performance tracking, and cost efficiency.
Before the introduction of RTB, ad inventory was bought and sold through direct deals between advertisers and publishers. This manual process became inadequate with the rise of internet usage and digital advertising.
The problem was that publishers had limited ad spaces to offer, and advertisers had specific targeting requirements. As a result, many ad spaces went unsold or were sold at a lower price.
To solve this problem, the concept of real-time bidding was introduced in 2009 by Admeld. Over the years, RTB has evolved significantly and is now a standard buying and selling ad inventory method. It has also created a new ecosystem of participants, including advertisers, publishers, DSPs, SSPs, and ad exchanges.
RTB has revolutionized the traditional method of buying and selling ad inventory. It involves multiple parties, automated processes, and real-time auctions. Let’s take a look at how RTB works:
The RTB ecosystem includes advertisers, publishers, demand-side platforms (DSPs), supply-side platforms (SSPs), and ad exchanges. Let’s take a closer look at the role and functionality of each participant:
Advertisers are companies or individuals who want to promote their products or services online. They create and bid on ad impressions based on their targeting requirements, budget, and campaign goals.
Publishers are companies or individuals who own websites, mobile apps, or other digital properties where they can display ads. They offer ad spaces to advertisers in exchange for revenue.
These are automated buying platforms advertisers use to manage and optimize their ad campaigns. They help target the right audience, set bids, and buy ad impressions across multiple ad exchanges. Ad inventories are bought using DSPs, and they charge a fee for their services.
SSPs are automated selling platforms publishers use to manage and optimize ad inventory. They allow for better control of ad space, real-time bidding, and optimization. SSPs charge a fee for facilitating the sale of ad impressions.
Ad exchanges are platforms that facilitate real-time auctions for ad inventory. Advertisers and publishers can connect through ad exchanges and negotiate the price of ad impressions. They charge advertisers and publishers a fee for using their services.
Now that we have an understanding of the RTB ecosystem and its participants, let’s take a look at how real-time bidding works step-by-step:
The process begins when a user visits a website or uses a mobile app. The website/app owner has ad spaces available for sale, which can be filled with ads. This ad space can be in the form of a banner, video, or native ads.
The website/app owner then sends an ad request to the SSP containing information such as user demographics, browsing history, and location. The SSP uses this information to find the most suitable ad for that user.
Ad exchange receives the ad request from SSP and conducts an auction among interested advertisers. Advertisers who have campaigns targeting that specific audience will participate in the auction. They submit their bids, and the highest bidder wins.
DSPs receive a bid request from the ad exchange and decide whether to bid on the ad impression. They use algorithms and targeting data to determine the value of the impression and set a bid.
The ad exchange receives all the bids and sells the impression to the highest bidder in real time. The winning DSP’s ad will then be displayed on the website or app.
The ad exchange receives all the bids and sells the impression to the highest bidder in real time. The winning DSP’s ad will then be displayed on the website or app.
There are two types of auctions in RTB: first-price and second-price auctions. Let’s take a closer look at each type:
The first-price auction is the most common type of auction used in RTB. In this model, the highest bidder wins and pays the amount they bid. For example, if a DSP bids $2 for an impression, and there are no other bidders, they will win the auction and pay $2 for that impression.
The advertisers need to be strategic in first-price auctions and set their bids accordingly, as they may end up paying higher prices for a single impression.
The open auctions on Google Ad Exchange and App Nexus are examples of first-price auctions.
In second-price auctions, the winner pays the amount bid by the second-highest bidder. For example, if a DSP bids $2 for an impression, and the second-highest bid is $1.50, they will win the auction but pay $1.51.
Second-price auctions offer cost-efficient bidding as advertisers only pay slightly more than the next highest bid. This type of auction is commonly used in private marketplaces and closed auctions.
Header bidding is a new technique used in real-time bidding, which allows publishers to offer their ad inventory to multiple SSPs simultaneously. This bypasses the traditional waterfall method and increases competition for impressions, resulting in higher prices for publishers.
Header bidding works by adding a piece of code on the header of a website or app that sends out simultaneous ad requests to different SSPs. The highest bidder wins and serves their ads on the publisher’s website or app.
While real-time bidding (RTB) is a form of programmatic advertising, they are not the same. Programmatic buying involves using software and automated processes to buy and sell digital ads. It encompasses all forms of buying and selling digital ads, including RTB.
Conversely, RTB refers specifically to the auction-based selling and buying of digital ads in real-time. It is a subset of programmatic buying that utilizes automated technology to facilitate the buying and selling process. Advertisers bid for each impression individually rather than buying them in bulk.
RTB is just one aspect of programmatic buying, and it involves a more dynamic and automated process compared to traditional methods of buying ad space.
Now that we better understand how RTB works let’s look at its advantages for advertisers and publishers.
With RTB, advertisers can target specific audiences in real-time based on demographics, behaviors, and interests. This allows for more precise targeting than traditional methods, where ad space is bought in bulk without targeting capabilities.
RTB allows advertisers to bid for impressions individually, which means they only pay for the impressions they win. Advertisers can set bid limits and budgets to ensure cost efficiency, ensuring they don’t overspend on ad space.
RTB provides real-time data and insights on ad performance, allowing advertisers to make real-time adjustments and optimizations. With traditional methods, it can take days or weeks to see the impact of an ad campaign. RTB allows for quicker and more accurate measurement of ad performance.
With RTB, publishers have access to a larger pool of advertisers, which increases competition for their ad inventory. The prices for ad space can be driven up, resulting in higher revenue potential for publishers.
RTB allows publishers more control over their inventory by setting minimum prices and targeting criteria. The ads served on their website or app are also more relevant to their audience, leading to a better user experience.
RTB opens up opportunities for smaller publishers to access a diverse pool of advertisers, previously only available to larger and more established publishers. In digital advertising, the more competition for ad space, the higher the prices can go. This benefits both publishers and advertisers regarding revenue potential and cost efficiency.
The benefits of RTB also come with some challenges that advertisers and publishers should be aware of.
Privacy is a significant concern in RTB, as is any form of digital advertising. Advertisers have access to user data, and there is a risk of sharing sensitive information without consent. To address this, regulations like the General Data Protection Regulation (GDPR) in Europe have been implemented to protect user data.
The security of the ad ecosystem is also a concern, as it can be vulnerable to fraud and malicious activity. Advertisers and publishers must implement fraud prevention strategies and work with reputable ad exchange partners to mitigate these risks.
The rise of ad blockers and changing consumer behaviors have also impacted RTB. Ad-blocking software prevents ads from being displayed, resulting in lost revenue for publishers.
As a result, advertisers need to rely on other forms of advertising, such as native ads and influencer marketing, to reach their target audience. This shift in digital advertising trends can impact the demand for RTB.
The rise of ad blockers and changing consumer behaviors have also impacted RTB. Ad-blocking software prevents ads from being displayed, resulting in lost revenue for publishers.
As a result, advertisers need to rely on other forms of advertising, such as native ads and influencer marketing, to reach their target audience. This shift in digital advertising trends can impact the demand for RTB.
Furthermore, there has been competition and consolidation in the RTB space, with major players like Google dominating the market. This can result in higher prices for ad space and limited options for publishers and advertisers.
Despite these challenges, the future of RTB looks promising.
In media and entertainment, RTB is expected to grow significantly, with a CAGR of over 17.9% from 2022-2032. This can be attributed to the increasing use of digital advertising in these industries.
The open auction segment is also predicted to grow at a high CAGR of over 17.3%, as it allows for fair and transparent pricing in the ad exchange.
Technological advancements, such as artificial intelligence and machine learning, are also expected to enhance the capabilities of RTB and make it more efficient. This can lead to even more precise targeting and higher ROI for advertisers.
In April 2022, Aerobid introduced a live charter bidding platform for brokers to request and book flights instantly. This showcases the potential for further innovation in RTB.
However, with the increasing focus on data privacy, new regulations and standards may impact how RTB operates. Advertisers and publishers must stay informed and adapt to changes in the digital advertising landscape.
