Knowledge Bridge

//Kevin Anderson /March 6 / 2013

Real-time bidding brings flexibility and revenues to digital ad markets

When journalists and editors talk about the disruption that the internet and digital media has brought to journalism, we often focus on how it has changed the way that the public gets access to news and information. However, some of the biggest changes have been to the business of journalism and especially to advertising, which is an essential source of revenue for most news outlets.

Search engines and social networks might not be in the journalism business, but they compete with news organisations for advertisers. And it’s not just new competitors that are challenging news groups for advertising revenue, it is also about an ever-changing landscape of technology and techniques, such as ad networks, re-targeting and now real-time bidding, which is also known as ‘programmatic’ buying and selling.

What is real-time bidding?

So what is real-time bidding? Online publishing data company Crowd Science explains real-time bidding like this:

Real-time bidding (RTB) is a relatively new advertising technology that allows online advertising to be purchased and served on the fly. Instead of reserving prepaid advertising space, advertisers bid on each ad impression as it is served. The impression goes to the highest bidder and their ad is served on the page.

RTB is an evolution of how ad exchanges used to sell remnant inventory, though it can seem challenging at first because of the alphabet soup of acronyms used to describe different parts of the marketplace. Here’s how it works: To facilitate the real-time bidding process, RTB exchanges buy data, often via tracking cookies, from across the web, and the data used across the process is managed by companies selling data-management platform (DMP) services. Supply-side platforms (SSPs) allow publishers to sell their inventory, and demand-side platforms (DSPs) allow advertisers and agencies to bid on the inventory. DSPs aggregate the inventory from multiple exchanges and, as Hollis Thomases explains on Clickz, “DSPs eliminate the need for another cumbersome buying step, the request for proposal (RFP) process”.

To simplify the process even further, Eric Picard of iMedia Connection broke down the RTB process from advertiser to consumer in this graphic.

For a more in-depth overview of the platforms, acronyms and technology behind digital ad exchanges and the programmatic buying and selling eco-system, we’ve written a brief primer to help you make sense of the jargon.

Here is another short explanation of RTB. The explanation is brief and useful, but the presenter speaks a bit quickly.

What is the opportunity of RTB?

RTB is relatively new and still makes up only a small part of the display advertising market, even in the most developed digital markets. Last year, RTB made up 13 percent of the US display market, but that figure was triple what it was the year before, according to eMarketer. The group estimates that the figure will rise to 19 percent this year, adding:

Research firms estimate US RTB digital display ad spending will total between $1.1 billion and $2.1 billion this year, driven by improvements in RTB technology and increased investment from both media buyers and publishers.

With the current downward pressure on CPMs (cost per thousand impressions), some publishers are concerned that RTB-powered ad exchanges will simply add to this pressure. Publishers also fear that they will lose control over how ads are displayed on their site and that this complex, technical system will require too many resources to adapt, according to Alex Gardner of MediaPost. However, RTB is not being driven to reduce already low CPMs. It is being driven by one thing only: increasing the efficiency of digital ad buying and selling.

Right now, there is too much friction and too much cost in digital ad buying. The process is complicated, time-consuming and expensive. Advertisers ask for request-for-proposals (RFPs) from publishers. After some analysis, the advertiser or agency chooses a couple of publishers based on some of their campaign goals. They create an insertion order, and send it out. Next the ad is created and agreed upon. “Somehow that all has to get delivered and measured,” Rodney Mayers, chief revenue officer of digital content data company Proximic, said in an interview with Knowledge Bridge.

The main impetus behind RTB isn’t that advertisers want cheaper inventory, Mayers said, adding:

I don’t as a buyer have the time nor does the client, the actual advertiser, want to bear the cost of all that friction. … The thesis behind programmatic buying, at least, is that I want to do the same thing. I just want to do it faster, and I want to do it right now. If your supply is in the system, and your audience data is in the system, your pricing is in the system, I don’t need to actually send you anything. I just need to buy it.

For publishers, RTB exchanges deliver greater flexibility to manage ad yield, Mayers said. Publishers can dynamically manage how much inventory they place into the exchange. He gave the following example:

This week my sales guys are selling kind of low. I am going to put 70 percent of my inventory in the exchange. Wait a second, a buy just came in. I can cut that 20 percent because I need to deliver for this $300,000 campaign. Next week, my sales guys are through the roof. I only need to put 10 percent in the exchange.

As for some publishers’ fears of lower CPMs, Mayers says that the more efficient process doesn’t just benefit advertisers and agencies but publishers as well. “Would you prefer a lower dollar CPM at a 2 percent margin because of everything that went into selling and winning, or would you prefer a $2 CPM or a $6 CPM at a 98 percent margin?” he asked, using hypothetical figures for the margins to prove a point.

The key for publishers is to effectively manage your advertising mix to the get the most digital revenue for your news organisation. He said:

It’s not a zero sum game. … It’s about balancing and managing yield so that … instead of one $200,000 buy, you end up with $250,000 where the 50 grand came basically came from exposing your inventory to everybody that wants to buy it.

How to shift your organisation’s thinking

The challenge of RTB, specifically, and digital advertising, in general, is not just technical. It also challenges much of the thinking and culture of media ad sales. How? “We’re seduced by big buys,” Mayers says. When one of your ad sales staff closes a big deal, it’s not just a jolt of adrenaline. “We feel special if we get one $300,000 buy. It reinforces everything that we believe about ourselves,” he says.

Programmatic buying takes away that rush and that affirmation. “(T)o get $300,000 automatically or through mechanised means or programmes, it seems a bit inhuman,” he concedes.

In the analysis of how news organisations have struggled and often failed to adapt to the changes of digital media, most of the focus has been on the newsrooms and on journalists and editors. However, little time has been spent on how the changes brought by the digital transition have affected the commercial side of news organisations. Mayers has put his finger on one of the reasons why traditional media sales teams have often failed to embrace some of the opportunities of digital advertising: selling thousands of impressions at $2 CPM just doesn’t feel as good.

In what he admits might sound a bit cryptic, Mayers says, “Do not underestimate the power of aggregated demand.” Sure, aggregating thousands of automated sales will not be as powerful as a big sell, but he urges publishers not to sit on the sidelines while this market develops.

Article by Kevin Anderson