Real-Time Bidding: What It Is and Why It Matters

  |  October 19, 2009   |  Comments

The auction media model, which helped to drive the explosive growth of search marketing, now comes to online display advertising.

During my career in the interactive media industry, I've been lucky enough to help lead companies on the leading edge of many significant innovations, from behavioral targeting to mobile advertising. None of these developments, however, had the potential to be so fundamentally transformative for the industry as real-time bidding ("RTB" for short) for display media. That's why I am writing a column on this topic, because I truly believe that our industry is about to experience a revolution.

In recent years, the auction media model has helped to drive the explosive growth of search engine marketing, both for its accountability and its cost efficiency. Now these same advantages are coming to display advertising, bringing a new level of precision to this richer brand medium. Inefficiencies of display have long been criticized, but reluctantly accepted, as the significant technical challenges required to change the status quo have remained barriers to improvement. This is about to change. New paradigms for media planning and buying will emerge in 2010. In the coming years, other display mediums will be transformed as well.

Early movers with this technology will be rewarded, both in their campaigns and in their careers. In this series, therefore, my intent is to explore the value of this new media strategy, how it works, and how it can be leveraged for marketing success.

First, I'd like to start with a definition of RTB and how it differs from existing auction-based media buying models. Many of you have probably worked directly with publishers and ad networks to manage media buys for your own campaigns or those of your clients. The need for a more streamlined, integrated approach has led many to use ad exchanges, as well. This first generation exchange model may be familiar to you: advertisers bid to buy impressions in "buckets" of 1,000 through an auction-based, static bidding system. Static bidding means that you are paying a flat or fixed average rate for each of the impressions in that bucket. RTB, in contrast, is dynamic bidding at the impression level. This means that an ad buyer, through the platform of their choice, can differentially value each individual opportunity to buy an ad impression in real time. Imagine accepting or rejecting each individual ad impression in your media plan!

Recently, in advance of a Webcast we conducted on RTB, we surveyed attendees about their biggest challenges related to online display advertising. By far, the most universal challenge noted was how to achieve better performance and ROI (define) for their campaigns. Here's a summary of the benefits real-time bidding can bring to performance and many aspects of an online campaign.

Cost efficiency. Your ad spend can go further, with less budget spent on poorly-targeted impressions or impressions delivered to fulfill a bulk inventory purchase, despite questionable relevance to campaign goals.

Yield management. With the ability to evaluate and place cost parameters on each impression opportunity, pay-for-performance takes on a new, positive meaning for your campaign. RTB buyers will have control over price/performance unprecedented in the world of display.

Actionable insights. By learning what works for your campaign at the impression level, you have a great opportunity to identify trends and discover new insights about your best -- and worst -- consumers, context, and creative. These learnings can be used to guide strategy both within your campaign and across a broader marketing effort.

Retargeting. Real-time, impression-level bidding can make cookie re-targeting more powerful and scalable, with ability to go beyond flat files and more precisely identify and target desired consumer behavior.

Creative optimization. Testing and matching creatives with consumers becomes much more efficient and effective in this new media buying model. Opportunities for a new level of customization of message and creative will also emerge.

Performance. In aggregate, all of the benefits described here should deliver an overall performance lift for online campaigns compared to previous approaches. And the good news is that this difference should be consistent and sustainable, across all types of target markets and audiences.

While every campaign is influenced by a myriad of variables, real-time bidding will help advertisers more effectively uncover, understand, and unleash opportunity within each campaign effort. Exciting times are ahead for advertisers. My next column will focus on inventory suppliers and finding your audience through RTB. In the meantime, tell us what you think. With marketers clamoring for measurable results in this economy, how will real-time bidding impact your marketing and media plans for 2010? We want to hear from you.


Mike Baker

Mike Baker is president and CEO of DataXu. He has been pioneering digital media platforms for 20 years and is a widely recognized thought leader in interactive advertising. Before cofounding DataXu, he was vice president at Nokia, where he created and ran Nokia Interactive. Baker came to Nokia through its acquisition of mobile advertising leader Enpocket in 2007, where he was the founding investor and CEO. Baker was previously a partner at venture capital firm GrandBanks Capital. He has also been executive vice president at CMGI and Engage Technologies, an innovator in online advertising and behavioral targeting. Baker holds degrees in law and telecommunications management.

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