WHAT IS RTB? PROGRAMMATIC+ Volume II Issue 01. What is RTB?

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1 What is RTB?

2 00 What is RTB? Table of Contents What is RTB? 2 The players 3 How they all work together 5 What really happens 6 Audience targeting 8 Publisher benefits 9 Advertiser benefits 10 Industry concerns and opportunities 11 Contact & sources 12 Understanding what programmatic is and being able to identify its various forms (including Programmatic Guaranteed, Preferred Deals, Private Marketplace, Open Exchange) provides the basis to focus on one of the more complex kinds of programmatic, real-time bidding. According to a survey by AdExchanger, 61% of programmatic budgets are spent on open exchanges utilizing RTB. Accounting for such a significant portion of ad impressions, RTB attracts many of the top industry players. So what is RTB? RTB demystified Real-time bidding is simply an auction where buys and sellers transact ad impressions. Each individual impression is auctioned to any number of bidders for the highest bid price. Just like any type of auction, the demand for every impression depends on its value to buyers, who are all using their own criteria ad size, vertical, audience, etc. to make their bids. That ability to bid on every single impression and precisely control who sees an ad sounds too good to be true. In an interview with AdExchanger, Boris Mouzykantskii, founder, CEO and chief scientist at IPONWEB, discusses the power of RTB. The promise of real-time bidding is mind-blowing. It basically says that for every single impression, [a machine can] decide what do you think about the person who is about to see this impression and what do you want to say to this person and how much do they want to pay for the opportunity to talk to this person. Before diving into how RTB works, it s best to understand who is involved in a given transaction and what they bring to the table. 01 The players 3 Real-time bidding allows buyers to find audiences at scale and sellers to realize the maximum value for each impression. Scott Siegler VP, Engineering & West Coast Operations The entities involved in an RTB transaction represent either the buyer, the seller or the marketplace. Here s a closer look at the players in the mix, from the buy to the sell side. Trading desks Agency trading desks are the programmatic arms of parent agencies. Trading desks manage analytical and targeting data proprietary to the advertiser or from third-party providers and use it to bid on impressions on demandside platforms or DSPs. Trading desks are often shared across large-agency holding companies. Accuen (Omnicom), Xaxis (WPP), VivaKi (Publicis), Cadreon (Interpublic Group), and Varick Media (MDC Partners) are majoragency trading desks. DSPs (Demand-side platforms) Sitting firmly on the buy side, DSPs connect agencies, trading desks or advertisers with multiple sources of inventory. DSPs are the gateway into the aggregated impressions on the exchanges and enable real-time buys which are often algorithmic. These platforms provide the knowledge and the technology that agencies need to bid in real time. DSPs have the ability to address issues of duplication and frequency that agencies or advertisers can t handle on their own. They are where inventory meets data to better inform buying and to reach the right target audience. MediaMath, DataXu, Turn, The Trade Desk, and Invite Media (owned by Google) are some major DSP players. AppNexus has DSP capabilities but also provides the technological infrastructure for other elements of the programmatic ecosystem. DMPs (Data management platforms) DMPs partner with data providers to deliver large and varied sets of data to all sides of the market. DMPs can leverage a buyer s or a publisher s first-party data (solely owned information on a publisher s customers or users), second-party data (sharing that proprietary data with another party for targeting purposes) or third-party data (data from an outside vendor). In addition to passing through or facilitating the use of third-party data, DMPs can also integrate online and offline proprietary data with third-party cookie data to create profiles or find trends. The most common forms of data that advertisers use when buying on DSPs are demographics, internet behavior, and offline product/service purchase behavior. Some of the leading DMPs are BlueKai, Quantcast, Lotame, and exelate.

3 02 How they all work together 5 Exchanges Exchanges are the center of the RTB ecosystem. They are where buys and pools of inventory meet and where the auction actually takes place. Ad exchanges offer tools and reporting services to inform and optimize the bidding process, but they are not responsible for targeting particular impressions and defer that logic to the DSPs. While exchanges can partner with both sides of the market, most have developed their RTB capabilities with buyers in mind. Many cite Yahoo! s acquisition of the Right Media Exchange in 2007 as the beginning of RTB. In the same year, Google (DoubleClick) and Microsoft (AdECN) acquired exchanges and their technologies. Some additional key players today are Gamut, AppNexus, and OpenX s Open Exchange. SSPs (Supply-side platforms) SSPs enable publishers to feed the demand that exchanges provide while allowing the publishers to control their inventory and yield. SSPs employ techniques to encourage a higher initial bid such as price floors. They also provide comprehensive reporting technologies that the more sophisticated publishers demand. Rubicon and PubMatic are two of the bigger-named SSPs, along with Gamut and others. MoPub (mobile) and LiveRail (video) have both been recently acquired and bring the SSP technology to other media types. On one side, the buyers or advertisers are looking for ad space to display their message. On the other side, publishers and websites have ad inventory and audiences they are looking to monetize. On the buyer s side, advertisers outsource their media buying/ planning to agencies. Agencies then rely on their trading desks to secure the programmatic portion of an advertiser s media buy. These trading desks will access publishers and websites inventory on exchanges through the DSPs and place bids on the inventory they would like to purchase. Because exchanges aggregate millions of impressions a minute, advertisers can use data management platforms (DMPs) and their audience-targeting data to determine the specific impressions on which to bid. The exchanges are where the transaction occurs, matching publishers inventory with buyers bids. On the other side, publishers who are selling impressions programmatically provide the inventory on the exchanges. Publishers can manage this inventory through SSPs. SSPs allow publishers to set floor pricing, determine which inventory to sell, and optimize their yield.

4 03 What really happens during that auction When each impression is served on a Web page, a few different actions may occur. Ad server priority (illustrated in this chart) controls the source of the potential ad to be served. 1 The page loads 7 If the publisher has a directly sold campaign, the ad impression may populate with the associated advertiser s message. If not, and the publisher is plugged into a programmatic platform, that ad will be served programmatically. Programmatic Direct takes next priority. However, many publishers may treat this as the same priority as direct sales. Private Marketplace (PMP) or Preferred Deals will usually have the next priority to the impression. If there are no direct-sold campaigns, PMPs or Preferred Deals, the ad server will tap into the open exchange to fill the ad. In an informative video, Media Crossing explains how the auction for an impression occurs in 200 milliseconds, filling that ad space before the webpage even fully loads. Advertisers will have placed bids through their DSPs to reach a user based on criteria including demographics, online behaviors, etc. The exchange will send out a bid request to those DSPs, and the highest bid wins. Depending on the software, some DSPs will send through only the highest bid, or the top few highest bids. Keep an eye out for our upcoming Multi-Bid Whitepaper for more information on this process and why everyone benefits from the increased transparency. The exchanges then perform any advertiser filtering on behalf of the publisher, and place the winning DSP s tag or the creative itself to display the ad Was the ad sold directly? Was the No Was the ad sold No ad sold through a No via programmatic private marketplace direct? or preferred deal? Was the ad sold through RTB in an open exchange? Yes Yes Yes Yes $ Ad impression served

5 04 05 Audience targeting & its role in RTB Publisher benefits 9 While RTB doesn t require audience targeting, the real value of the exchanges lies in that ability to look through billions of impressions to find the specific users that are relevant to the advertiser. RTB also democratizes and widens the data that can be utilized; the buyer can leverage their own data, a publishers first-party data, purchased third-party data, or even sell their buyer data for others to use. Audience targeting focuses the ad to a particular user either by demographic, online behavior, or even offline purchase behavior, depending on the advertiser s campaign objectives and strategies. Those targeting parameters are applied to each auction matching that user with the most relevant ad unit. The DSPs will bid more or less for each impression based on how well they match a campaign s targeting criteria. The DSP will adjust how much it bids for a given ad impression based on how well the impression matches the desired audiencetargeting parameters. Monetization and yield optimization are the primary benefits to publishers. Typically, publishers provide exchanges with inventory that they were unable to sell directly. This allows publishers to monetize inventory that would have gone completely unsold otherwise. The inventory isn t lower quality, it just doesn t have a direct buyer at that time. Digital impressions are perishable; if they aren t sold prior to serving, the value is lost. Additionally, publishers can analyze buyer data from programmatic sales to improve yield. They can see who wants their inventory at what price, and then compare against direct sales. Many publishers are offering all of their inventory through RTB. The prospect of de-averaging CPMs (impressions selling for their true market value on an individual basis vs. bundled together with relatively similar inventory but priced identically) scares many publishers; however, it can lead to higher yield. Many publishers fear that their overall ecpm will fall, since much of the lower-value inventory will see a decline in CPM. On the other hand, a publisher s more-valuable inventory could sell for higher than rate card if the demand commands it. Many advertisers will be willing to pay a hefty CPM for quality and premium inventory. Efficiency is another benefit to publishers. Impressions can potentially be monetized with minimal effort from a direct sales force. Of course there are limitations on what can be sold programmatically. Guaranteed buys are still predominantly direct-sold, and custom sponsorships with white-glove creative require direct contact, though some emerging companies are cracking this nut programmatically as well.

6 06 07 Advertiser benefits Industry concerns & opportunities 11 RTB has been built with advertisers in mind, leading to many benefits for buyers. Consolidation and efficiency are two of the greatest. Advertisers, through their agencies, can cherry-pick the audience they are targeting, and they can purchase inventory through one platform (that may aggregate a variety of other platforms) vs. sending out RFPs to build a full, comprehensive media plan. The benefits carry over to analysis and performance evaluation as well. When everything is on the same platform, performance measurement is much easier; however, performance measurement and attribution is still evolving in the programmatic space (addressed in the next section). The de-averaging of CPMs also benefits advertisers. While advertisers are still willing to pay premiums for higher-value inventory, paying fair market value for each impression is the end result and ultimate goal. When inventory isn t bundled, each impression can be purchased at fair market value. 71% of inventory on publisher networks is in view of the consumer. 51% of inventory on ad exchange networks is in view of the consumer. 47% of inventory on ad networks is in view of the consumer. Viewability According to Integral Ad Science, 51.3% of inventory on ad exchanges is in view of the consumer. While this is better than the 47% visible on ad networks, it is less than the 71.5% viewable on publisher-direct inventory. Advertisers are concerned that when they buy media programmatically over RTB channels, they are getting only remnant, low-quality inventory; however, the industry is making moves and finding opportunity in this area. In March 2014, the MRC (Media Rating Council) lifted its advisory on viewability and published its own guidelines on the subject: 50% of display should be in view for at least one second, video for two seconds. Seeing the opportunity in the movement, publishers are putting more of their higher-quality inventory for sale on the exchanges. Viewability-based pricing is said to be on the horizon, which would take advantage of the publisher shift. Attribution/measurement An ongoing issue for digital media as a whole, not just RTB specifically, is attribution. The lowest common denominator for measurement has been click-through rate (CTR). But under this model, when a user sees your ad in three different places and clicks on the last one, the first two locations don t receive any credit. The challenge is determining how exposure to the ad in the first two locations contributes to conversion. Since advertisers are looking for conversions, the third location is rated higher than the others because that s where the consumer saw the ad and converted. The industry recognizes this flaw, and one response to last-touch attribution has swung to the other extreme. Certain attribution mechanisms give credit to every touch point between the advertiser and converted consumer this is done on a DSP level, tagging the conversion pages of the advertiser. Audience On Demand (AOD) suggests the answer lies in the gap calculating an attribution rate based on ad server conversions/dsp conversions. Advertisers can look at their true conversion number from their ad server and take into consideration the DSP s highest conversion rate without using only duplicated conversions as the final metric. Transparency Transparency was once an enormous issue in the industry. When ad networks came onto the scene strong in the early- to mid-2000s, advertisers knew very little about where the ad was served. It was up to the network s secret sauce. Now, advertisers are not only demanding more transparency, but more control over where the ads are served.

7 08 Contact & sources 12 Sources O Connell, Joanna. AdExchanger Research. The State of Programmatic Media Q McConnell, Ted. Warc. The Programmatic Primer: A Marketer s Guide to the Online Advertising Ecosystem IMAGE Credit: Based on Display LUMAscape LUMA Partners LLC 2013 Find out how Gamut s Programmatic+ can help your business. Media Crossing. Video: 200ms: The Life of a Programmatic RTB Ad Impression Apr 17, 2014 Fisher, Lauren T. emarketer. Digital Advertising Trends Programmatic, Big Data, Native, Viewability May 22, 2014 Doherty, Will. AdExchanger: The Sell Sider. Why I Joined The Supply Side September 5, 2014 CONTACT Cheryl Ng VP, Publisher Development cng@gamut.media Integral AdScience, Feb 2014 Vindico, May 2014 Fung, Eric. Audience On Demand (AOD). Attribution: Efficiency vs. Gaming July 2014 AUTHOR Scott Siegler VP, Engineering & West Coast Operations ssiegler@gamut.media facebook.com/gamutsmartmedia