“This Real-Time Bidding thing is less complicated than I thought”
Real-Time Bidding is everywhere. It’s behind every site you visit and every web ad you see. It’s responsible for hundreds of thousands of decisions every minute, but most people don’t even know it’s there.
Have you have been browsing books on Amazon, just to get distracted and move onto something else… only to see that same book presented to you on the next site you visited? And the next. And the next.
Is Amazon tracking you? How do all of these sites know that you want to buy the latest Harry Potter book – but haven’t yet? Well, the long and the short of it is that they don’t know. But advertisers do.
Instead, your impression is identified, bid on, and sold at lightning speed every time you click on a new page. Every single one of your clicks sets off a bewilderingly complicated chain of events that results in that ad being displayed just for you.
This cascade of events occurs over and over when you’re browsing online. It’s how countless free websites make their money. That is to say, by serving ads.
But how is that that specific book is offered to you in particular?
You see these targeted ads thanks to the complex, ever-moving machine that is online advertising. And the modern online ad industry is built upon a protocol called “Real-Time Bidding.”
What is Real-Time Bidding exactly?
Real-Time Bidding, or RTB, is a way for publishers to sell ad space on their websites to advertisers. The advertisers have ads that they want served, and the publishers have the space to serve them.
It’s just a matter of which ads, where, and at what price.
This is precisely the problem that Real-Time Bidding was developed to solve. Before its conception, advertisers and their representatives bought impressions in bulk from publishers.
Advertisers didn’t have any real control beyond deciding which publishers they wanted their ads to appear on and for how many impressions.
So if an advertiser wanted to reach computer programmers, he might buy ad space on a programming forum or a tech news site. He would assume that, given the nature of the site, the majority of the impressions would at least be qualified.
This means that the ratio of desired impressions (programmers) to impressions bought would be higher compared than it would be on, say, a website covering rare orchids.
But, say he were placing ads for a programming job site. Even if a large percentage of visitors on the publisher’s website were programmers, only a minority would be searching for work at a given time.
So most of the impressions that the ad would receive would be essentially wasted. They might help build the job site’s brand, but most impressions would potentially be from people that didn’t have an immediate need for the service.
Advertisers were wasting money on impressions that didn’t bring them value.
Real-Time Bidding Changed all of that
With Real-Time Bidding, the paradigm shifted. Rather than buying bulk impressions from publishers and hoping that a good percentage of them would convert, RTB allowed advertisers to start purchasing the impression itself.
Thanks to cookies and other user tracking software, each incoming impression could be evaluated before the page was even loaded. The advertisers could then bid on the impression based on what they thought it was worth to them.
So thanks to RTB, advertisers were able to greatly reduce the risk of wasting an impression. Sure the impression might not convert every time, but a much higher proportion of the ads bought were shown to real potential customers.
Thanks to RTB, basketball companies were able to stop advertising to soccer moms. Instead these soccer moms now receive ads for soccer gear and car seats.
This industry sea change has led to much greater market efficiency, but another adtech revolution made this one possible.
A Revolution in Targeting
The Real-Time Bidding process is primarily based on data gathered by cookies. Cookies are small pieces of software that a website can leave on a visitor’s browser.
Nowadays, cookies used by ad networks can determine all kinds of demographic data points based on user behavior.
They can determine geographic location, language, device type, interest, and more.
It was the advent of advanced cookies and Big Data that made the made Real-Time Bidding possible.
Without having these demographic parameters, there wouldn’t be a point in holding the auctions. The participants (DSPs) wouldn’t have the information needed to make informed bids.
So with every added data point, Real-Time Bidding makes the ad placement more effective and thereby the system more efficient.
The Real-Time Bidding Process
So here’s a simplified overview of the steps that occur when Real-Time Bidding is used to determine ad placement
- A desktop or mobile user starts loading a page
- That page’s Ad Server decides to sell the bid and forwards the impression information to its Supply Side Platform
- The Supply Side Platform either sends out a Bid Request on its own or put’s it on an Ad Exchange
- RTB clients (generally Demand Side Platforms) receive the Bid Request
- Based on the various demographic data points provided by the server, RTB clients place bids.
- The RTB server determines the winner and final price.
- The winning client pays for the impression and the ad is forwarded to the SSP which sends it down the line to the user.
This process, which can span entire timezones and involve multiple servers and clients, generally takes less than 200 milliseconds.
The whole process occurs while the user transitions from one page to another; from his perspective, it can seem instantaneous.
OpenRTB – An Open Format for Open Communications
Since Real Time Bidding only works when a lot of different players can speak to one another. From the Supply Side Platforms which host the RTB Servers to the Demand Side Platforms that make the bids, the system can only work when there’s a common language.
For much of the industry that common language is the OpenRTB API (Application Programming Interface). This is a data exchange protocol specifically designed to fulfill the needs of the online advertising industry.
First released in 2010 (so not long after the birth of Real Time Bidding itself), OpenRTB has become an industry standard.
Initial Concerns among Publishers
Publishers initially had some concerns regarding the meteoric rise of Real-Time Bidding. While for advertisers bulk impression buying led to a good deal of inefficiency and wasted buys, for publishers that money was just as green no matter who saw the ad.
So with the advent of Real-Time Bidding, there was (and still to an extent) fear among publishers that they’re selling their inventory on the cheap. Since the advertisers were now only buying impressions that they qualified as worth the cost, other impressions would sell for cheaper due to the bidding system.
At least, that’s what they feared.
Thanks to advanced tracking, what actually happened is that valuable impressions could be found even when they’re outside of their predicted “zone.”
To go back to the Amazon example, let’s say you checked out a book online, but got distracted. Maybe you went to go check out your
Without advanced tracking technology and Real-Time Bidding, you’d probably see a bunch of random ads related to your local area.
This is because that would be one of the only things that could be immediately gleaned by your visiting the site (that you’re interested in and probably live in that area).
With Real-Time Tracking, Amazon can retarget you and, since you were just on the site looking at the product, you’re a very high-value impression for Amazon. Whereas before you were a relatively unknown and unknowable impression.
Real-Time Bidding did away with the over-purchasing of impressions that certain advertisers didn’t really want.
However, this ended up being a good thing for publishers since the value of every single impression could be very accurately determined, presented, and sold to a pool of bidding advertisers. So instead of lowering revenue, it actually increased it.
Every impression is valuable to someone, and Real-Time Bidding helps determine and realize that value.
Industry Growth
Publishers have largely come to embrace Real-Time Bidding, as illustrated by the enormous growth that the industry has experienced and continues to experience.
Real-Time Bidding has been revolutionizing the AdTech industry since 2009, but it has really been picking up steam over the last few years as targeting and retargeting have become must-have features for advertisers.
That growth isn’t expected to slow down any time soon.
According to Statista, in the United States alone Real-Time Bidding was a 23.5 billion dollar industry in 2018. That’s extraordinary growth when compared to the 6.36 Billion spent in 2014.
This kind of substantial growth is mostly the result of the shift away from the older forms of buying internet advertising space combined with the continual growth of social media.
Due to the inherent advantages that Real-Time Bidding offers for both publishers and advertisers alike (not to mention the end user who sees pertinent rather than random ads), it will be one of the primary drivers of growth in the adtech industry for the foreseeable future.
And that’s just the beginning
This article has given you a short introduction to a very complicated subject. We didn’t even really get started on the nuts and bolts that hold the RTB machine together. We briefly touched on OpenRTB but didn’t even scratch the surface of the other protocols involved such as XML and JSON.
But to fully understand how Real-Time Bidding works, you need to understand the other parts of the ecosystem it holds together. The DSP, the SSP, and the Ad Exchange are all key parts of the system that serves you and billions of other people ads every day
Recap – What you need to know
Real-Time Bidding fundamentally changed the way that advertisers purchase impressions and publishers serve ads.
Whereas in the past an advertiser bought bulk impressions from a publisher that he judged to have relatively qualified traffic, RTB (and more advanced cookies) allowed advertisers to bid on specific impressions on an instantaneous basis.
Now each user’s impression is qualified, proposed to bidders, bid on, and sold prior to a page loading. And it all takes less than a fraction of a second.
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