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Real Time Bidding (RTB) what is it and how does it work?

Real Time Bidding (RTB) or, real-time auction, is a way of auctioning online advertising spaces. It was founded in 2007 when Google, Yahoo and Microsoft bought the main ad exchanges, platforms for the real-time purchase and sale of inventories from multiple advertising networks. Respectively, the three multinationals bought DoubleClick, RightMedia and AdECN. This created the need to create an efficient system that could improve the workflow management of countless advertisers and advertising agencies.

According to a series of data provided by Google and related to the campaigns activated on DoubleClick in 2011, the introduction of rtb has increased the sale of advertising space by 68%.

 

How Real Time Bidding (RTB) works

It all comes about when a user uploads a page in the browser that contains an advertising space, information about the page on which they are located and the user who views it is transmitted to an ad exchange software, which auctions them off and sells them to the advertiser willing to pay the highest price.

The winning bidder’s ad is uploaded to the web page almost instantly; the whole process takes only a few milliseconds to complete and the user doesn’t notice anything.

The purchase of advertising space is usually made through an open auction mechanism that allows advertisers to make a specific offer for each impression that becomes available from time to time. As a rule, the advertiser who submits the best bid wins the impression.

 

The actors involved: Advertisers and Publishers

The advertiserstypically use demand-side platforms, Demand Side Platform (DSPs) to decide which impressions to buy, and when to bid based on a variety of factors, such as the sites on which they are displayed, the previous behavior of the users who upload them, socio demographic or behavioral characteristics of the users themselves.

A sports goods site, for example, might recognize that a user has previously been on his site looking at a certain pair of tennis shoes, placing them in the cart without concluding the order, and therefore, he may be prepared to pay more than other advertisers in the hope of bringing the user back to his site to conclude the sale.

On the other hand, publishers using offer-side platforms, Sell Side Platforms (SSPs) to try to optimize the sale of the advertising space available to them. The purpose of these platforms is to automate the sale of advertising space by maximizing its revenues.

The meeting point between demand, SDRs, and supply, SSPs, are ad-exchanges,real “impressions markets”. And this is where the real-time auction (RTB) takes place, all in time between 300 and 500 milliseconds.

Ad-exchanges typically earn a commission as a percentage of the price paid for the impression.

 

Auction methodologies compared: Auction of first price vs Second price auction

The auction methodology used is not always the same, the most used models are two: first price and second price.

First price auction: In this model, the buyer pays the exact amount based on his winning bid. For this reason buyers try to make an offer close to what the impression actually applies to them. This type of auction tends to maximize revenue for the seller.

Second price auction: in this model the buyer pays 0.01€ more than the second highest bid made in the auction. It is in the buyer’s interest to offer as much value as possible, to maximize his chances of winning the bid.

The latest evidence shows how the market is moving in favour of first-price auctions. This is because the second-price auction unbalances the economic advantage towards advertisers by greatly penalizing publishers.
Secondly, the move to the first-price auction removes levels of ambiguity and makes the playing field suitable for everyone, including buyers, publishers, networks, exchanges, SSPs and SSPs ensuring greater transparency throughout the supply chain.

Finally, with the introduction of header bidding (which we will delve into in another chapter), buyers get better results with first-price auctions.

 

Real Time Bidding is a key pillar of programmatic campaigns and has greatly contributed to improving the industry, allowing you to increase sales and improve CMCs.

Thanks to real-time offers, ad buyers no longer have to work directly with publishers or ad networks to negotiate prices and transfer ads. Using exchanges and other advertising technologies, they can access a wide range of advertising space on countless sites, and choose only the impressions they deem most valuable to them. This reduces the number of impressions wasted on the wrong users. Likewise, it is a valuable tool for publishers to fill their advertising spaces.

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