Real Time Bidding: what it is and how it works

This area of web marketing is perhaps more recent compared to other much more established and well-known ones, but it deserves no less attention for that.

The role of the RTB specialist, or real time bidding specialist, is certainly one of the most sought-after by companies and those who want to plan a good web marketing strategy cannot think of not having a dedicated and specialized figure in this field.

That’s why it’s important to be experts, competent, and prepared to carry out this type of activity, thus becoming true real-time bidding specialists.

Real-time bidding is one of the rising activities in the world of digital advertising, yet it is still not widely discussed. We are talking about an important tool for marketers, and in this article, we will see what it is and how it works.

What is Real Time Bidding and how does it work?

RTB – or real-time auctions – represents the technological evolution of intelligent buying and selling of online advertising space.

An advertising campaign created with Real-Time Bidding media platforms allows you to intercept and display real-time ads to a targeted and selected audience based on needs, behaviors, and habits displayed online.

There are three well-known definitions that explain what RTB is:

  • “Real-Time Bidding, impression by impression based decision making.” Why Real-Time Bidding? Because every buying and selling action of advertising space happens in real-time; it is not decided beforehand, in most cases, but occurs when two technologies, one selling and one buying, “talk” to each other.
  • “Targeting the user visiting a website, not just the website itself.” It’s most effective to target users directly rather than making assumptions based on website categories or sections.
  • “Delivering the appropriate advertisement to the ideal individual at the perfect moment” requires identifying the correct audience for delivering the suitable advertising message.

None of these three definitions is wrong, yet all three are somewhat partial. Furthermore, there is often a nomenclature issue, and RTB is confused with Programmatic Buying, for which we see the not entirely correct but more widely known definitions:

  • Private deals are Programmatic Buying.
  • RTB is Programmatic Buying.
  • Programmatic Buying also includes RTB.

In fact, they are different things. To better understand, the ecosystem in which advertising is purchased automatically through the real-time dialogue of software platforms is called “Programmatic Advertising“; RTB is a part of the world of Programmatic Buying.

real time bidding platform

In essence, RTB is an online auction sale of advertising spaces. Through sophisticated software, the DSP (demand-side platform), capable of connecting to thousands of websites, the advertiser selects the target audience, and budget, and creates their campaign on the web.

The publisher sells impressions and makes their advertising space available. At this point, the advertiser places their bid using the Ad Exchange, software that evaluates advertisers’ offers and determines the “winners.”

The Ad Exchange provides an anonymous audience profile, along with information about the website category, while the DSP uses complex predictive algorithms to decide which ads might yield a higher ROI for each campaign.

Let’s make a point to understand better: in RTB, there is a selling side and a buying side. The parties use two platforms that communicate with each other: the buying platform asks if there is an available impression with specific characteristics, such as a precise advertising format and a type of user ideal for that type of advertising.

The selling platform responds affirmatively. But how does the sale happen?

The buying platform communicates to the selling platform that it is willing to pay, for example, $1 per impression. The selling platform responds that it usually sells that impression for $1.20. At this point, the buying platform confirms whether it has room to accept the offer.

Simultaneously, another request arrives, for example, for $1.40 for the same impression. At this point, the buying platform already knows if the first offer can be countered or not. In fact, it’s an American-style auction.

The difference with Google AdWords (you can find the official page), which is Pay per Click (PPC), as opposed to Pay per Thousand Impressions (CPM).

 

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Advantages for advertisers

For advertisers, there are several advantages resulting from RTB:

  • Allows buying impressions based on target preferences.
  • Provides a clearer way to identify who will see the ad compared to other methods.
  • Enables intervening and correcting the campaign while it’s running, without waiting for final reports to make changes.
  • Helps find new customers and send messages to old customers with cross-sell and up-sell proposals.

For advertisers, knowing the profiles of those who will see the ads means being able to make an informed decision: whether to focus on a certain impression or allocate the budget to spaces and profiles more suitable for their business.

Advantages for large and small businesses

RTB is useful for both large and small businesses: brands can decide the budget to allocate and the strategies to access immediate performance reports and, if necessary, adjust strategies and channel choices.

The software is highly sophisticated and uses algorithms that process the maximum amount of data possible in real time. Without operating on a large scale, systems don’t have the opportunity to optimize functions.

Are the Real-Time Bidding results really so rewarding?

Everything seems perfect, but are there any hidden traps? While RTB is a reliable and profitable tool, many brands are concerned about the possibility that their ads may lack visibility.

rtb marketing strategies

It’s important to turn to reliable partners and align RTB with the overall RTB marketing strategy.

As seen in the image, the Interactive Advertising Bureau has come to the rescue to better define RTB and its characteristics, specifically understanding all the possible ways in which advertising can be sourced or sold programmatically.

Why choose Real-Time Bidding?

Why should Real-Time Bidding be convenient? One advantage is not needing human intermediaries. It’s not so much about economic revenues; every platform will take care of the margins of what happens in RTB trading.

Another important factor is optimizing advertising purchases. Finally, we can reach the right target, the exact user we want with the most appropriate communication, all at the most convenient price for us.

rtb trading

What is bought programmatically is exactly the possibility to avoid manually creating media plans in large Excel documents and weeks of work.

This means that what is bought programmatically is time. Time saved for purchasing, selling, and obtaining precisely the desired type of advertising. Time is taken away from unnecessary phases in favor of more advantageous ones.

What is the difference between Programmatic and traditional media?

In this picture, you can have a quick glimpse of the main differences between the two systems:

programmatic vs traditional media

  • Programmatic buying in RTB both space purchase and sale are automated, while in the traditional media, we have a long queue of negotiations for space purchase, and then in the entire campaign loading process.
  • The frequency cap is the limit on how many times a user should be exposed to an ad message within a given time period. In the traditional system, there is a frequency cap for each individual concessionaire, as in the case of the programmatic system. The main difference is that programmatic advertising works more precisely in reaching target audiences, leading to more accurate results and lower costs. The disadvantage could be the difficulty of tracking the effective frequency planned for each user.
  • In programmatic RTB, we have the option of in-house retargeting, which allows us to build brand awareness in a very precise and reliable manner on all fronts. In the traditional way, we have retargeting entrusted to third-party media companies, which is often less precise. Here you can have more efficiency in retargeting your audience and then, you can have more conversions.
  • In programmatic RTB, we have cookie planning as opposed to the traditional world of media planning. We can say goodbye to planning on websites and we can allocate the budget only to the users who are genuinely interested in our ads. This approach is able to determine who is really viewing the ad message at that moment.

 

In summary, how does programmatic RTB work?

In traditional media (still the case in many instances)

  • You would call the concessionaire
  • You would send an email to the concessionaire
  • You would create the media plan with the concessionaire
  • You would negotiate the offer

What can be done now with programmatic RTB

  • You can set everything directly in the machine and deliver your message where and how you prefer.

rtb in programmatic buying

To engage in RTB, it’s necessary to possess multiple skills in various areas of digital marketing. Currently, the market demands increasingly specialized professionals in different online sectors.

RTB and the Programmatic Ecosystem: how it works in the market

What is the market like? As seen in the image, the landscape is vast and complex. Here, the entire ecosystem of technological players in this field is summarized.

programmatic ecosystem

There is a number of technological players to engage with that was unthinkable until some time ago.

The programmatic ecosystem has the following structure, which includes an agency trading desk, DSP, DMP, SSP, and publisher. 

real time bidding in the markets

The Agency Trading Desk (ATD) is a specific area of a digital agency that plans and purchases advertising spaces. ATDs use DSP (Demand Side Platform) to buy ad spaces in programmatic channels; DMP (Data Management Platform) to handle data for reuse, SSP (Supply Side Platform) to represent publishers. In the end, the publishers will see the ads on their websites. If you want to learn more about Programmatic Advertising, please click and read the linked article.

 

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Programmatic Buying Cycle

In the image, we see a typical process in programmatic buying, from media planning to cookie planning. The user opens a page. The Ad Server responsible for delivering ads on the page checks if there is a guaranteed impression available.

In other words, has someone made a premium reservation that requires displaying a banner? The answer is either “yes” or “no”. In the case of “yes”, the guaranteed banner is delivered. In the case of “no”, the SSP is called.

programmatic buying cycle from media planning to cookie planning

The SSP identifies the user based on the data cluster they belong to and, in turn, informs the Ad Exchange that there is an interested user: a 35-54-year-old man who follows the telecommunications industry and is a typical online shopper. The DSP that placed the highest bid delivers the banner.

This entire cycle happens in a few milliseconds, and the impression delivery is paid 1 cent more than the second bid, following the principle of the American auction.

Real-Time Bidding in Infographic

rtb in infographics

The Bid: the logic of American auctions

As seen in the image, the scheme is as follows: the winning bid is the highest at $2.75 CPM, but it is paid only one cent more than the second bid, which is $2.61.

The technology, at the heart of RTB, allows advertisers to compete with other advertisers for the purchase of advertising space in real time. The Ad Spot will be awarded to the advertiser with the highest bid, and the allocation takes place in a fraction of a second.

american auction bid logic

RTB Methodology: the 4 fundamental project phases

Every digital communication project must be created and implemented following a clear and organized methodology in 4 phases. This way of working allows for the development and planning of effective digital communication strategies to achieve predetermined results.

The project phases are divided into 4 macro areas:

  • Analysis: this is the most important phase where relevant information is gathered to understand the business needs and goals. It involves research in the target markets and a careful study of the competition. Identifying the target audience and creating the digital media strategy to achieve the objectives.
  • Design: it is necessary to plan the activities to be carried out by defining priorities according to the strategy.
  • Delivery: tools (banners, landing pages) need to be implemented and created, followed by the activation of the advertising campaign.
  • Verification: it is necessary to measure the results during the course of the campaign to make performance improvements.

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How does reporting work?

One must be meticulous and detailed about everything that happens during the campaign’s live period, and the best reporting method involves simplified reporting, allowing clients to receive all the information about the campaign’s performance to understand the results of RTB and the ROI on the investment made.

Real-Time Bidding: new trends in the advertising industry

  • Major brand advertising will use in-app formats. In recent years, mobile technology has gained increasing prominence, with approximately 71% of internet traffic coming from smartphones and tablets worldwide. 
  • Increase of native formats. Why? They avoid pauses, they are relevant for the target and then more likely to be clicked, and, of course, they can be measured. These features improve the CTR, ROI, and conversion rate. 
  • The prevalence of ad-blocker usage is expected to decline, particularly in North America and Europe. This allows users to have a better user experience and to be less concerned about tracking cookies and privacy. However, on the other hand, the websites have less revenue and can’t guarantee high-quality content.
  • Brands will spend less for non-skippable interstitial, midroll, and pre-roll ads. They are looking for more efficient formats but interactive formats remain in use.
  • New measures for brand effectiveness will emerge and grow. CPM (cost per thousand impressions) and impressions won’t be enough. Actions will be the important metrics: likes, shares, comments, sales, etc.

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