Introduced in 2009, RTB (short for Real-Time Bidding), has turned the performance marketing industry around. Not only has it helped reduce the costs of digital marketing ad campaigns, but also drastically changed the approach to audience targeting, leading to higher conversions and maximized revenues. It quickly became the driving force behind most performance marketing campaigns, allowing marketers and media buyers to focus on polishing targeting parameters, rather than seeking publishers and ad spaces manually.

For all its usefulness, Real-Time bidding is predictably a rather complex system, with many processes happening at the same time. Let’s take a closer look at how RTB works and examine why this bidding model changed the way modern performance marketing works.

The Impact of the RTB Model on Performance Marketing

Prior to the introduction of the Real-Time bidding process, big parts of advertising budgets were getting wasted on useless impressions because only a small percentage of reached audiences were, in fact, the target. This was the case because the system worked based on fixed rates and a “first come, first serve” model.

What did it mean for advertisers? Let’s imagine a company producing basketballs. Back in the day, it would advertise its products on sports websites, as the audiences would seemingly match its target.

This approach sounds like a decent idea in theory, but in practice, the audiences were too broad. The ad would reach fans of many different sports, most of them not likely to be interested in the offered product. Only a fraction of the ad recipients would turn out to be the target.

Moreover, the campaign would be displayed both during the day and at night when the conversion rate is presumably lower, further lowering its ROI.

The introduction of Real-Time Bidding Advertising allowed the advertisers to cherry-pick the impressions they truly cared about and spend money only on their target audiences with programmatic buying. Publishers, on the other hand, were given a chance to maximize the value of their ad space and gain incremental monetization solutions.

How Does the Real-Time Bidding Algorithm Work?

The term “RTB” refers to buying and selling ad space each time a webpage loads. The whole process takes about a hundred milliseconds, four times shorter than a blink of an eye.

On the Demand Side: The Advertisers’ Way of Placing Orders

The whole process starts with an advertiser – an individual or a company that wants to place an ad online – setting up their campaign. It’s usually done through a Demand-Side Platform (DSP). A DSP lets advertisers set the targets of their campaigns and limit the budget they are willing to spend.

The key advantage of RTB is precision. Advertisers can distinguish their audience by utilizing different sociodemographic data. If your campaign would call for it, you could target only people in a certain city, using a particular device during a specific time of the day. With RTB, the targeting options can really point you to your future customers, regardless of how specific the requirements are.

There are various types of pricing models available. From CPV (Cost Per View), through CPM (Cost Per Mille – that is 1000 impressions), to CPI (Cost Per Install), and others. To avoid surpassing their budget, advertisers can set a frequency cap that limits the number of impressions of a particular ad per user. This way you avoid bothering audiences with the same ad every hour.

On the Supply Side: The Publishers’ Control Over Ad Space

While advertisers are using Demand-Side Platforms to place ads, publishers are utilizing Supply-Side Platforms (SSPs) to sell their advertising inventory.

Thanks to SSPs, publishers have full control over their ad space and maximize profits by offering all their ad inventory to multiple advertisers at the same time. Using SSPs, the publishers provide information about their website’s audience and set up the minimum impression price.

Whenever a user loads the page with ad space for sale, the SSP communicates with the DSP to share information about the upcoming impression. The SSP delivers all the sociodemographic data needed for the DSP to determine if the impression is useful.

Ad Exchange – A Digital Marketplace

The exchange doesn’t occur directly, though. It is handled on an RTB performance platform called Ad Exchange.

Ad Exchanges are digital marketplaces where advertisers and publishers meet, usually via DSPs and SSPs, and try to reach a deal. It’s where the actual bidding takes place.

When an impression is about to be made, the SSP sends a bid request (containing all the details about the impression) to the Ad Exchange. In response to the bid request, the DSPs decide whether it’s worth it for the advertiser to participate in the bidding. In other words, when the campaign criteria are met, the real-time bidding begins.

All the advertisers whose targets align with the particular impression enter the auction and place their bids. Since the process needs to happen faster than a blink of an eye, advertisers don’t get a chance to one-up each other during the auction. Their first bid is their final bid.

Once the bidding is finished, the ad is displayed, and all sides benefit from the exchange.

See Zeropark’s Media Planner Case Study and Complete Guide on CPC bidding to discover how to optimize the bidding process for the most efficient RTB campaign results in Commerce Media.

Best RTB Advertising Platforms For Your Performance Marketing Campaigns

Even though it’s the DSP that’s responsible for buying and the SSP for selling, the Ad Exchange is the crucial part of the equation. It’s a platform that facilitates the whole transaction.

RTB platforms can differ in terms of the quality of audiences, pricing, and offered ad formats. Moreover, the lines between the DSPs, SSPs, and Ad Exchanges have begun to blur, with the last becoming a universal solution for all sides.

The best Ad Exchanges work both as self-serve platforms, in which advertisers can set up campaigns by themselves, and as fully managed services, where dedicated teams provide a full range of campaign management assistance.

The quality of delivered audiences is another crucial factor. It’s only natural that brands want their advertisements to appear exclusively in a brand-safe context, so the best RTB platforms ensure their supply comes from trusted sources only. In-house compliance monitoring is usually a tell-tale sign of a platform that caters to the need of Media Buyers working for established brands concerned with their image.

Why is RTB Important For Performance Advertising?

More than anything, RTB platforms simply enable both demand and supply sides to maximize their revenues.

Publishers have full control over the pricing and can adjust it accordingly to the intel that RTB platforms provide them with. RTB makes it possible to recognize which audiences are most valuable for them so that they can build stronger relationships with those who are the primary advertising target. This can help improve publishers’ individual sales strategies and globally increase the value of their ad space.

For the advertisers, the opportunities seem endless. The robust targeting settings and the ability to bid only for relevant impressions have changed the performance marketing industry once and for all. Ad efficiency skyrockets with RTB, not just because of wiser spending and purchasing at an adequate value, but also because of comprehensive retargeting possibilities.

Real-Time Bidding changed performance marketing for good, and it’s safe to say that there’s no coming back to the way things used to be. Precise targeting, better budget efficiency, and carefully curated selection of audiences – advertisers, brands, publishers, and consumers themselves have learned to expect more from digital ads. In the current climate, choosing the right RTB platform becomes almost as important as choosing the right format or budget, and it’s difficult to even imagine doing things manually ever again.