What is RTB?
Real-time bidding is a server-to-server buying process that allows ad space on websites to be sold and bought on a per-impression basis. This process works immediately through an auction that determines who gets to buy a specific impression. It is usually facilitated by a supply-side platform (SSP) or an ad exchange. An SSP is a software that lets publishers sell display, mobile, and video ad impressions to potential buyers in real-time. This includes ad exchanges, networks, and demand-side platforms (DSPs), giving publishers greater control over their inventory and CPMs.
Why is RTB so important?
RTB is important for both advertisers and publishers.
- Publishers: RTB increases revenue and fills rates by opening inventory to a wider variety of buyers in a competitive auction. As a result, publishers can have a clear image of who is buying and which inventory and this can help them decide to increase the cost for their premium placements.
- Advertisers: RTB means more efficient, streamlined, and targeted buying. It provides advertisers with the ability to make better choices regarding targeting and focus on the most relevant inventory. As a result, users see more relevant ads.
Is RTB the same as programmatic?
No. RTB is a type of programmatic advertising, but not all programmatic advertising uses RTB. Some “programmatic” platforms let publishers sell their inventory in advance for a fixed price, as opposed to auctioning it off.
How does RTB work?
RTB operates on an auction model. You set the max bid (CPM - cost per 1000 impr) that you will pay for placement and win impressions at $0.01 above the next highest bidder. Here is a visual illustration:
How many action types are there?
Typically, there are two types of price mechanisms: the first-price auction and the second-price auction. However, RTB auctions generally work on the second-price model.
- First-price auction: the winner is the bidder offering the highest price. For instance, advertiser A bids $2, advertiser B bids $3, and advertiser C bids $4. The winner will be the advertiser C since he offered the highest price.
- Second-price auction: the winner is the bidder offering the highest price, but the auction is cleared on the basis of the highest bidder paying fractionally more than the second-highest bidder. For instance, we will take the same advertisers as in the first-price auction; A, B, and C.
Advertiser C is the winning bidder, but the auction will be cleared at the second-highest bidder’s price plus a small fee, generally one cent - $3 + fee.