Real-time bidding

Real-time bidding (RTB) is the process in which digital advertising inventory is bought and sold. The process occurs in less than a second, with the advertising bid being won—meaning the ad is displaying on the publisher's site in a matter of milliseconds. Real-time bidding lets advertisers manage and optimize ads from multiple ad-networks, which allows them to create and launch advertising campaigns, prioritize networks, and allocate percentages of unsold inventory, also known as backfill.

While relatively new, a report from Juniper Research from 2018, found that the use of algorithms in bidding with real-time bidding could generate, or were expected to generate, more than $40 billion annually in 2021, compared to the $3.5 billion in 2017. This was expected to grow as the use of internet-connected devices increases and the focus on digital advertising and the adoption of real-time bidding grows.

As a page loads in a user's web browser, an ad impression loads as well, and information about the page it is on and the user viewing the page is passed to an ad exchange. The ad exchange auctions the impression to the advertiser willing to pay the highest price. The winning bidder's ad is then loaded onto the page, with the user viewing the page almost never noticing what happens in near real-time, or milliseconds.

A diagram of how real-time bidding works.

Advertisers typically user demand-side platforms (DSPs) to help decide which ad impressions to purchase and how much to bid on them, based on a variety of factors, including the person viewing the page's search and browsing history, purchasing history, demographics, location, and time of day. The price of the impression is then determined in real time based on what buyers are willing to pay.

The cost of real-time buying varies, depending on other bids and what a user is targeting with an advertisement. This includes the same factors that determine whether an advertiser wants to bid on an ad impression, and can include:

• Keywords
• Location
• Demographics
• Interests

An advertiser can make these decision based on how much they are willing to invest in a given advertisement. Advertisers can pay anywhere from $2500 to upwards of $15,000 for a campaign, but are not limited to that range. With real-time bidding operating on a CPM basis, a bid can be closer to the range of $1 to $2, and a budget for a campaign can be controlled in real time.

As advertising technology goes, real-time bidding is a portion of programmatic advertising, while programmatic advertising contains real-time bidding under its umbrella of operations; it is not the same as programmatic advertising. Often programmatic advertising is used as a catchall term for technology-driven digital ad selling and buying, and RTB is a part of this process in some cases. RTB is better thought of as a part of programmatic advertising, such that some publishers can sell inventory without the use of RTB through programmatic advertising methods.

Diagram on the role of ad exchanges in programmatic advertising.

Similarly to real-time bidding and programmatic advertising, RTB and ad exchanges are not the same thing. Ad exchanges play a significant role within programmatic advertising and can be a vital part of RTB. In the process of ad inventory being bought and sold on a per impression basis, ad exchanges act as the platform where publishers and advertisers come together to trade digital ad inventory. This marketplace uses demand side platforms (DSPs) to assess the ad inventory available to the advertisers. If the impression is found to match the advertiser's target audience, a bid is placed via the DSP, and if won the ad gets delivered to the publisher website.

Demand side platforms are a component of real-time bidding. DSPs are programs through which digital ad inventory gets bought by advertisers, while RTB is the mechanism used to purchase said inventory. Demand side platforms benefit the advertiser by helping them gain access to various RTB exchanges through a single access panel for ease of use and efficiency of ad campaign management.

Real-time bidding has various advantages or benefits for both advertisers and for publishers. Historically, advertisers used websites as a proxy for their ads, such that if an advertiser wished to reach sports fans, they would buy ads on a sports-related site. Whereas RTB has allowed advertisers to target ads to specific users instead. It can be good for advertisers as it provides greater inefficiencies for ad buyers and advertisers.

RTB can be important for publishers to increase revenue and fill rates by opening inventory to more and a better variety of buyers in a competitive auction. Publishers can also gain visibility into who is buying which inventory and leverage this knowledge to charge more for premium placements.

With RTB, ad buyers no longer need to work with publishers or ad networks to negotiate prices and to traffic ads. Through exchanges and related technology, publishers can access a range of inventory across a wide range of sites and cherry-pick only the impressions deemed of best value. This can reduce the number of impressions used on the wrong users and minimize the need for ad buyers.

The use of real-time bidding can also help a publisher know or discover which part of an audience deserves the most attention from a monetary perspective, as publishers can discover which types of audience interests advertises the most and fetch the best prices. This can help publishers gain such insights and develop websites in profitable directions. As well, a publisher can use the supply side platform (SSP) to understand their most profitable inventory segments and sell inventory directly to interested parties. Similarly, publishers through SSPs can have added control over inventory, such as specifying which advertisers can buy ad inventory and set the pricing.

Real-time bidding can be important for advertisers because it means a more streamlined, efficient, and targeted buying, while providing them with the ability to fine-tune targeting and focus on the most relevant inventory results in higher return on investment. Users can also see more relevant ads.

RTB technology ad inventory is bought on an impression basis through a range of variables that make targeting very focused. An advertiser does not have to buy ad inventory in bulk and risk wasting money on non targeted or irrelevant website visitors. Advanced techniques and tools such as frequency capping and bid forecasting can further increase the efficiency of each campaign by allowing advertisers to test, control, evaluate, and even predict certain campaign variables.

Advertisers can also view and manage campaigns through a dashboard and adjust bids and targeting as needed to maintain results or improve overall performance. This can help advertisers transform and improve marketing strategies, as they can learn and grow their understanding of consumers, creative and strategic approaches, and the impression data provided to them through campaigns.

Real-time bidding can also provide the tools necessary to help protect a brand for advertisers, with those advertisers able to specify where to promote products or services and use ad verification services to prevent ads from showing on illicit websites or pages.

With all of the advantages of real-time bidding, there are inevitably challenges. One challenge is brand safety, as where an ad is displayed can be as important as who sees it. A 2019 Ad Colony survey reported that 60 percent of consumers have a negative perception of brands with ads that appear near inappropriate, hateful, or offensive content. And, in the nature of RTB, there is a risk an ad may appear on a site with content an advertiser does not want a brand associated with. However, brands can limit this using keywords and placing sites on a deny list.

Similarly, ad fraud can be difficult, with Cheq estimating in 2020 that ad fraud cost digital advertisers $35 billion, and with 10.5 percent of digital ads reaching bots. The rising sophistication of bots can also cause brands to gather inaccurate data on those campaigns, and some deceitful publishers can fabricate impressions to steal from advertisers. However, this can be combated with a DSP or ad network with fraud detection software.

Privacy has also been suggested as a challenge of real-time bidding, with the Information Commissioner's Office (ICO) in the United Kingdom publishing a report about the use of personal data in RTB advertising. This report highlights some privacy challenges that arose from the exchange of personal information. While the report did not provide legal guidance, it did issue considerations for RTB to make and to reevaluate in order to improve standards.

This included the gathering of information in lawful ways, and only processing personal data a user has a "lawful basis" for. Because subsequent processing of personal data that is not in a special category does not require consent in GDPR, organizations usually use the "legitimate interest" legal basis to process the data gathered during RTB. However, the ICO suggests in the report that organizations do not use the "legitimate interest" as a legal basis and instead ensure they're obtaining consent for the data gathered.

As well, the ICO report suggested that organizations provide detailed, transparent notice about what data is collected in RTB. While not even the organization will know who will get access to the personal data of the users during RTB, the organization should still look for ways to be as transparent as possible about what data is gathered as well as a notice that the data could be shared with third-party companies.