Online Ad Optimization And The Real-Time Bidding (RTB) Opportunity
Photo credit Cornishman and Ljupco Smokovski - Mashed-up by Robin Good
Real-time bidding is a new, emerging feature of online advertising optimization technologies aimed at increasing the value of ad impressions by targeting users dynamically and on an impression-by-impression basis.
Real-time bidding allows advertisers to reach the right user, at the right time and place inside a competitive bidding environment, where advertisers try to reach out to the same user in a real-time auction and assign an individual value to each specific ad impression.
This is a fundamental shift in the way that ad price prediction works today.
Currently, most digital media buying is done based on assumptions about certain audiences. Individual impressions are sold at a pre-negotiated price, which causes ad impressions to be often under-valued and to result in a low CPM (cost for thousands impressions) for publishers.
Real-time bidding inside online ad auctions wants to change the rules of the game by letting advertisers efficiently segment their audiences on the basis of their unique characteristics, instead of having those emerge from statistical averages across the segment.
What this means is that, when using real-time bidding web publishers may earn more for their ad inventory while also gaining useful insights into their audience that was previously available primarily to ad networks.
It is also true that real-time bidding for online ads is still in its infancy, but as the authors of this report predict, it may have a growth of 3-5% in 2010 which should seriously alert publishers to learn all about this new technology and get the most out of their ad inventory.
In this in-depth research report you will find comprehensive information on how real-time bidding works as well as clear indications of its pros and cons.
Disclosure MasterNewMedia has no commercial partnership or co-interests with PubMatic and has been given permission from the publisher / author to present this report on the Web.
Understanding Real-Time Bidding (RTB) From The Publisher Perspective
by PubMatic and Bennett Zucker
Real-Time Bidding, or RTB, is sure to be one of the most frequently used online advertising buzzwords of 2010.
Many advertising experts have argued that it is going to fundamentally change the course of online advertising as we know it. It has even been referred to as the next revolution in advertising for the benefits it will provide to all players in the ecosystem - the publisher, the user, and the advertiser.
Real-Time Bidding allows advertisers to reach the right user, in the right place, at the right time - and assign an individual value to a particular ad impression.
Leveraging advanced technology offered by a relatively small but quickly growing number of companies, advertisers place bids on reaching specific users dynamically, and on an impression-by-impression basis.
PubMatic has found that publishers monetizing ad inventory via RTB can receive an increased eCPM because of the improved campaign performance that RTB offers. In the case of one particular US Entertainment publisher, the publisher was able to achieve a 106% increase in eCPM over a six-month period.
Along with the clear benefits of RTB, publishers must be cognizant of the potential pitfalls associated with this emerging media buying trend.
RTB was originally conceived as an advertiser-focused solution, and publishers must take multiple issues into account in order to make their businesses successful in an RTB-enabled world.
PubMatic estimates that less than 1% of online advertising was purchased via RTB in 2009, and that will grow to 3-5% in 2010.
Because RTB is the fastest growing segment of US online advertising, it is imperative that publishers understand the RTB landscape and how to successfully harness RTB ad dollars to their benefit.
Unlocking The True Value of The Impression
The most important promise that RTB holds for publishers is increasing the value of ad impressions.
With RTB, advertisers have the greatest level of transparency available on the individual user in real-time, which can significantly increase the value of each ad impression and the corresponding publisher CPM.
Having greater transparency about the user in real-time provides great insight to advertisers, but it is the difference in how media is bought and sold with Real-Time Bidding that is the true game changer.
Currently, most digital media buying is done based on assumptions about certain audiences.
For example, audiences bought through ad networks and ad exchanges are often purchased in buckets or by segment. How the audiences are categorized in certain segments depends on who is selling them. And while some audience sellers do a better job of segmenting users than others, so long as individual impressions are being grouped into a bucket and sold at a pre-negotiated price, they are not being fairly valued and are often sold at under-valued prices, as shown.
Example 1: Same User, Same Campaign (Purchased Differently)
In Example 1, a luxury car advertiser is looking for a very specific audience type and is willing to pay a premium price to reach a specific user that is highly qualified.
The more qualified the use, the more the advertiser is willing to pay.
On the right side of the example below, the advertiser (or rather the technology company placing bids on behalf of the advertiser) can see unique characteristics about the user and therefore is willing to pay a $3.90 CPM to target that user.
On the left hand side, the same user would have been bucketed into an auto-buying segment and priced according to the segment price,which is far lower than what was paid via RTB for the individual.
Example 2: Segment Based Campaign Vs. Impression Level Campaign (RTB)
Example 2 below shows the ongoing luxury car ad campaign on a larger scale.
Because RTB is conducted in real-time, advertisers,or their proxy vendor that facilitates their media buying, can buy impressions to reach specific users or reject them as the campaign is in progress.
Therefore, in a real-time situation the luxury car advertiser would likely choose to reach many of the same users that would have been segmented for them as auto buyers in a pre-negotiated bucket buy.
However, having more information about each individual user, the advertiser would also likely want to reach users that did not fall into the pre-defined auto buyer segment while also rejecting some of the impressions that would have made it into the segment.
More importantly, the pricing would be different based on the unique characteristics of each user as opposed to an average across the segment.
The Ecosystem Benefits of RTB
In the long run, advertisers that have better performing campaigns can pay more to target the right users.
According to Turn, a company that facilitates RTB transactions for advertisers by leveraging inventory from sell-side platforms such as PubMatic, advertisers are seeing up to 135% improvement on click-through rates and 150% improvement on conversion rates.
Better performing campaigns have a positive impact on all parties involved, not just for the advertiser.
In the image above are a few key benefits that RTB brings to the publisher, the user, and the advertiser.
Understanding The RTB Ecosystem
Real-Time Bidding is very much still in its infancy, but the number of companies that help advertisers and publishers leverage RTB is growing rapidly.
In 2008, the number of companies talking about RTB could be counted on one hand. In 2009, the number of companies involved in real time bidding increased dramatically, but each category in the RTB ecosystem plays a significant role and it is important for publishers to understand those roles.
The Many Possible Flows of RTB
Ensuring High Publisher eCPM With RTB
A truly competitive bidding environment is essential for ensuring consistent and continuous revenue growth.
PubMatic has seen significant eCPM improvements for its publishers that are participating in RTB campaigns, but because this is a bidding environment, a high price is not guaranteed.
RTB is still in its infancy, and the number of RTB advertisers is relatively small, so without enough advertisers competing to reach the same user, a lucky advertiser could get the ad space for below market value.
Increased Bidders Drives Value of Ad Space
In order to ensure there are enough bidders to keep the value of the publisher's ad space high, PubMatic's Ad Auction Engine™ brings the greatest number of bidders together in a real-time auction for every impression.
Three Categories of Buyers
When advertisers find the user they want to reach, they are willing to pay a high price to reach that user-but they still want to pay the least amount possible in order to reach that user.
PubMatic's Ad Auction Engine™ does not allow any real-time bids to win an auction unless the bid is high enough, as shown in Example 3.
Example 3: The Ad Auction Engine™ Process Works For Every Impression
An RTB bid only wins if it beats the pricing coming from PubMatic’s Ad Price Prediction™ and direct sold insertion orders that a publisher’s direct sales team entered into PubMatic's system.
In this example above, the real-time bid of $3.05 bid did not win. Instead a non-RTB enabled ad network was willing to pay the most for the ad space.
Due to the fact that there are far fewer RTB enabled demand partners than non-RTB ad networks and exchanges, in most cases an RTB bidder is not selected to serve an advertisement.
In the cases where there are no RTB bidders competing for the publisher impression, PubMatic selects the highest paying ad network or exchange using the proprietary Ad Price Prediction™ process, or chooses to show an ad from a direct sold insertion order if it is the highest priced ad available.
The Ad Price Prediction™ process is powerful technology that was developed over the course of several years by PubMatic's 40+ full time engineers.
The majority of RTB transactions that PubMatic facilitates on behalf of the publisher are received from companies that have their own campaign optimizing algorithms working the benefit of the advertiser.
For example, when a DSP is working on behalf of an advertiser, the DSP continually adjusts its pricing during the course of the campaign in order to reach the right audience at the lowest cost to the advertiser.
However, PubMatic's Ad Auction Engine™ keeps ad prices high for the publisher by bringing together the greatest number of demand sources for each impression, and as a result, real-time bidders often have to increase their bids if they are to win the impressions they want.
Example 4: The Ad Auction Engine™ Competitive Environment Encourages Higher Bids From RTB Partners
RTB enabled demand partners fine tune their bids during the course of a campaign. If they continually lose auctions due to low pricing, they will increase their bids.
In this example above, the real-time bid did win after increasing the bid price to reach a specific audience.
It could be several years or longer before there are enough real-time bidders to ensure high pricing for the publisher. However, PubMatic is connected to the greatest number of RTB demand partners of any sell side platform.
How The RTB Process Works For Each Impression
It is critical to include as many RTB partners as possible in order to have the RTB partners increase the percentage of wins they have within the Ad Auction Engine™ process.
The number of demand partners that are plugged into PubMatic's API for RTB is continuing to grow at a fast pace and is nearly four times what it was just six months ago.
The increase of RTB demand partners will help to increase bid prices, but the Ad Auction Engine™ remains a key part of the bidding process in order to get the most qualified advertisement at the highest price possible for the impression.
Filling Impressions By The Numbers
The chart represents an actual PubMatic publisher in December 2009.
Every impression that PubMatic facilitates goes through The Ad Auction Engine™. The percentages represent where the highest paying ads are coming from.
Ensuring RTB Data Safety and Brand Protection
Real-Time Bidding has the potential to bring significant revenue lift to publishers, but RTB is not without its own brand control and data safety risks.
Publishers need to understand that RTB was originally developed for the benefit of the advertiser, and therefore publishers should consider an RTB partner that is a strict publisher advocate and has the tools to protect the publisher.
There are five key considerations that publishers should be thinking about when selecting a partner for RTB:
1. Getting The Right Demand Partners From The Start Prevents Most Hassles
As most publishers know, not every ad network or advertiser is well intentioned. A strict RTB partner vetting process should be required based on the objectives of the publisher.
A publisher's RTB sell side partner should enforce demand partners and advertisers to:
- Meet the minimum RTB technical requirements for ad speed and data safety so that latency and brand control is not a problem
- Actively bid on the RTB platform and meet a minimum number of bid wins each month to ensure that no "data squatters" on the platform
- Comply with regular auditing of data that is collected vs. dollars spent on bidding
PubMatic, for example, has set up a strict Trusted Partner Program™ for RTB and will pro-actively remove demand partners that do not meet the high expectations set in the agreement.
2. The Publisher Should Set The Rules Around What Data Is Passed and Have a Way To Enforce Those Rules
The publisher owns their own data and publishers need the ability to set rules around which data they pass to aspecific bidder.
In some cases ad networks or other demand partners will try to collect more information than is needed for the campaign. Publishers should have a way of protecting themselves from data theft.
For example, Data Firewall™, is a proprietary product developed by PubMatic that:
- Gives publisher total transparency a about what data is being passed
- Identifies pixels and tracks if ad network or advertiser is putting pixel on publishers without permission
- Automatically alerts a publisher when demand partners go beyond "normal targeting"
3. Screening Ads In Real-Time Process Helps Prevent Unwanted Ads
Ensuring creative control can be difficult. A publisher's sell side platform partner should have a creative screening of all advertiser creative on the publisher's site available to view in real-time.
Ideally, the sell side platform has this process built into their UI so that when the publisher logs in they can see the creative that is being shown on their site at that moment.
In order to provide the publisher with a snapshot of what ad sare going across their site, or sites, at any given moment, PubMatic offers publishers a Live Creative Dashboard™ that:
- Takes regular screenshots of publisher website in 5-60
- Emails screenshots to PubMatic's Creative Services Team
- Traces URLs referred to during ad serving
- Reduces manual work of reloading ad tags for checking creative
4. Preventing Unwanted Malware Is Key To a Good User Experience
For the most part, RTB advertisers do not use malware simply because the cost of RTB campaigns are too expensive to waste on such advertising.
However, it can happen and an extra safety net should be available to ensure that publishers have maximum safety.
There are now products available for publishers that:
- Automatically scans all ad tags
- Pro-actively and quickly identify any potential malware
- Alert the publisher if there is a security breach
- Send an email detailing ad calls + URL / Ad Network mapping
Publishers have the option of using the products themselves or partnering with a sell side platform such as PubMatic that has it built in as part of the service.
5. Loading Speed Should Never Be an Issue
Part of a good user experience is fast loading pages.
A globaldata center footprint ensures that demand partners return bids in milliseconds to ensure positive end-user experience.
Publishers may consider asking their partner about the location of data centers, and ask about:
- Speed delivery times
- How often the speed time is monitored
- Whether or not a third party company verifies the speed time
Publisher Results Using PubMatic To Participate In RTB Campaigns
It is critical to include as many RTB partners as possible in order to have the RTB partners increase the percentage of wins they have within the Ad Auction Engine™ process.
PubMatic has been live with Real-Time Bidding since February 2009, and as the first sell side platform to market with RTB, has been carefully monitoring the results.
PubMatic publishers participating in a fixed minimum number of Real-Time Bidding campaigns in 2009 saw an average eCPM boost of 64%.
Average Publisher eCPM
The following case studies represent PubMatic publishers that have been actively participating in RTB campaigns for at least 6 months to ensure revenue lift was consistent and stable.
The eCPMs reflect the averages before using PubMatic, the average using PubMatic without RTB, and using PubMatic with RTB.
Publisher RTB Case Study 1
Publisher RTB Case Study 2
If advertisers want Real-Time Bidding, publishers should think about real-time selling. And in 2010, we will see more publishers dipping their toes into the RTB pool as they realize its potential to connect them to more great brand advertisers and the opportunity to improve eCPMs for their valuable audiences as well as for their harder to sell inventory.
While a handful of media companies have shut out ad networks or replaced third parties with homegrown networks, many successful publishers - with great brands, experienced ad sellers and the latest technology - still struggle to fill 50% or more of their inventory.
"We have a very high touch sales organization," an executive of one major publisher says, "and there has tended to be a bias against networks and exchanges." In spite of intense debate in the company, they have committed to testing.
"Some of our inventory is currently biddable on exchanges through our optimizer, and we are excited about introducing RTB," he says, adding that early tests seem promising.
He urges publishers to catalog and share successes and best practices. "Every publisher should be testing and getting ready for the day when RTB will become the norm. Otherwise, even now,you are just leaving money on the table."
"Buying at the impression level, as opposed to the placement level, allows segmentation strategies to be executed with greatly reduced waste.
Of course, segmentation must be informed, so with impression buying comes the need to use data to profile impressions to realize that segmentation. This is where the fusion of contact / customer data with campaign data, site data and profile data becomes critical to directing trading strategies.
This is an extremely exciting area for our industry, with major implications for our ability to drive clients' business volumes that are attributed to digital media."
As RTB continues to grow, publishers may earn more for their inventory while also gaining insights into their audience's value that was previously available primarily to the networks.
Adding up the possibilities, there may be good reason to expect a five-fold increase in RTB volume this year.
As PubMatic's co-founder & CEO Rajeev Goel cautions,
"Real-Time Bidding is still in its infancy, but it is gaining momentum every day. Publishers cannot afford to stay on the sidelines and let somebody else figure it out and take home the growing tide of RTB advertising dollars."
Originally written by PubMatic and Bennett Zucker, and first published on February, 1st as "Understanding Real-Time Bidding (RTB) From The Publisher Perspective".
PubMatic is a global ad revenue optimization company that provides online publishers with a service solution to manage and monetize non-Guaranteed ad inventory. PubMatic's real-time ad price prediction technology ensures that online publishers get the most money from their advertising space by deciding in real-time which ad network or exchange can best monetize each impression. There are currently over 6,000 large and medium publishers working with PubMatic. PubMatic is venture backed by Draper Fisher Jurvetson, Nexus India Capital, and Helion Ventures.
About Bennett Zucker
Bennett Zucker is currently the principal at Media Tech Business. In the past he was a publisher of magazines and books for such companies as Rodale and McGraw-Hill. In 2007, he was with Right Media, and also held a few shares in Tacoda, where he worked for three years, when it was acquired by AOL.
PubMatic and Bennett Zucker -
Understanding The RTB Ecosystem - Chris Lamphear
Ensuring High Publisher eCPM with RTB - John Takai
Ensuring RTB Data Safety and Brand Protection - Mipan
Publisher Results Using PubMatic To Participate In RTB Campaigns - Sapsiwai
Reference: PubMatic [ Read more ]
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