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The fundamentals of real-time bidding

The fundamentals of real-time bidding Philip Smolin

When it comes to online advertising, there's a common misconception that real-time bidding (RTB) is a whole new ball game, requiring a separate media strategy and an entirely new set of campaign goals. While it's true that RTB is a different buying model for marketers to understand, the promise of digital display advertising remains "right message, right customer." What RTB adds to the equation is "right price and right time." Thanks to RTB and auction marketplaces, digital display can now be purchased in ways similar to search, and it dramatically improves a marketer's ability to reach specific audiences at scale. It's easy to think this might just be relevant for direct response campaigns, but in fact RTB delivers tremendous advantages for brand and branded response campaigns as well. Let's look at how RTB enables all advertisers to more efficiently and effectively achieve four common campaign objectives.

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However, these strategies, while extremely effective, tend to have limited reach. To increase scale, advertisers can use look-alike modeling to expand the size of the targetable audience. Look-alike modeling finds new consumers that closely resemble the demographic and psychographic attributes of an advertiser's existing audience. How does this work? Imagine a dart board where the original remarketing audience is the red bull's-eye in the center. Look-alike segments are the concentric circles that extend out from the center, with each circle increasing the scale of audience available at decreasing levels of similarity.

2. Reduce media waste
With RTB, marketers get exactly the impressions they want and control over their ad spend. This immediately improves efficiency by ensuring the advertisers only purchase media for their target audience. Additionally, efficiencies can be gained even before you buy the first impression. Sophisticated DSPs provide marketers with powerful bid-forecasting tools that are used to predict the unique user reach and impression availability for a customer audience segment, along with how that availability changes based on bid price and frequency cap. By analyzing these data points during the planning process, the planner can evaluate potential media strategies and avoid spending time and money on those that will not scale up sufficiently enough to be worth pursuing.

Another plus to operating campaigns in the RTB environment is universal frequency caps. This feature, which brand advertisers have been waiting for since the inception of online display advertising in 1995, enables the DSP to monitor and enforce a single frequency cap across every RTB inventory source. Media buy duplication is (finally!) eliminated, keeping costs under control and ensuring each consumer is served the correct number of ad impressions.

3. Optimize for performance
"Real-time bidding" literally means real time, and as advertisers observe campaign performance, they can react immediately to the data. No more waiting hours or days for campaign analytics and then picking up the phone to call a publisher to change an IO. All of the performance data and controls for changing campaign targeting, budgeting, and bid pricing are presented in a single interface and just a single click away.

Depending on the capabilities of your DSP, sophisticated algorithms might consider thousands of variables about the consumer, site, web page, and ad creative to predict the right bid price for every impression. Some DSPs also provide algorithms for optimizing budget allocation and will automatically shift dollars to the auction markets and targeting strategies that are driving the best audience reach or ROI. Even with these powerful tools in the hands of the campaign manager, it's important to not be hypnotized by a lower CPM. "Spray painting" campaigns with cheap impressions doesn't necessarily lead to a better outcome. Serving fewer but more relevant impressions to the right consumers is frequently a more productive route to quality conversions and a lower effective CPA.

4. Maintain brand safety
In the early ad exchanges, buyers didn't have a lot of control over publisher quality, and they often bought impressions on a blind basis. Thanks to RTB, marketers can now choose what impressions to purchase and at what level of transparency. For more brand-conscious advertisers, it's now possible to ensure a campaign is displayed on specific websites and types of content, and to enforce those rules in real time. The IAB has recently developed standards for content categorization and site transparency levels that will become a standard for all IAB-certified ad exchanges (and ad networks) in 2011. To maintain a brand safe environment, select the auction markets and publishers that provide the highest transparency possible, and use DSP tools that enable you to select inventory quality levels that match your brand's requirements.

Since its inception in the mid '90s, online display advertising has remained largely unchanged. While there have been new rich media ad units and some improvements to ad targeting, the basic mechanics of how advertising is bought and sold has remained the same. But, with the adoption of RTB, order of magnitude improvements in scalability, performance, and brand safety are possible. In particular, many brand advertisers will be surprised to find RTB is their friend, and presents a more effective and efficient method to reach audiences at scale while improving campaign ROI.

Philip Smolin is GM, platform solutions, at Turn

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Philip is the General Manager of Turn’s Platform Solutions Group, which was created in 2009 to provide Turn’s media optimization technologies to global agency holding companies, independent agencies and direct advertisers. Previously...

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to leave comments.

Commenter: Angi Kelley

2010, August 23

This is one model where the suppositions don't match with real-life. RTB works great in theory and if you can determine what time or date a customer is more likely to purchase. But not industries that have no purchasing patterns. Then there's the competitors who up the bidding to such a point it's no longer profitable because they don't track their sources but believe all the SEM and PPC agencies that insist you have to have a campaign to survive. Sorry... but it's outpricing itself just like yellow pages.

Commenter: Liz Zedo

2010, August 23

Thanks for writing this detailed piece on RTB Philip. It is becoming a more and more popular topic in our space and advertisers need to understand the fundamentals. Of course the objectives of RTB are nothing new, but hopefully the technology will help publishers sell more inventory, and help advertisers buy inventory faster and more often.

Marketing Manager