The Nuts and Bolts of Real-Time Bidding: How RTB Advertising Works and What Makes It so Special

Keep reading or watch Dmitry Chebatkov, Product Owner at Epom DSP, breaking down RTB bidding and explaining the technology behind it with definitions, charts, and examples.

“Real-time bidding” or “RTB” became a catch-all term. We use it to identify different concepts in ad tech: the way we buy ad impressions, the online auction where the impressions are sold, the protocol behind the auction…

We call it all just “RTB” to keep things simple. However, such a simplification has a downside — it results in an ocean of misconceptions and unclarity. You’re probably here because of confusing RTB definitions, too, aren’t you? Now is the time to cross your t’s and dot your i’s. Together, we’ll learn what RTB meaning is, how it works, and how you can take advantage of it.

You’re probably here because of confusing RTB definitions, too, aren’t you? Now is the time to cross your t’s and dot your i’s. Together, we’ll learn what RTB meaning is, how it works, and how you can take advantage of it.

What Is Real-Time Bidding?

The “real-time bidding” (RTB) definition often describes automatic media buying with ad inventory sold per impression. The impressions are auctioned in real-time right before the winning ads appear on a website, in an app, on CTV, or anywhere else. Let's refer to this method of buying media as RTB programmatic.

If we dwell deeper into RTB meaning, we can discover that RTB is in fact, a protocol that makes the programmatic auction possible.

The first RTB-enabled programmatic ad exchanges began to emerge around 2009. Our favorite search giant, Google, was the pioneer of the technology with its Doubleclick Ad Exchange.

Ad tech and martech are very slow to change and embrace new software, but sometimes rare exceptions happen. And so, by 2010, the benefits of RTB advertising became obvious to most advertisers, and the demand for programmatic skyrocketed.

As of now, real-time bidding is the dominant force on the market. It not only makes online ads possible but spreads its impact on the world of digital OOH.

Several RTB-Related Terms You Should Know

In RTB programmatic, the RTB auction is the core process. It ensures that the highest bidder wins an ad impression on the publisher’s media. It's also called an open auction since any publisher and advertiser can participate in it.

The platform that hosts open auctions is called RTB exchange or ad exchange. It communicates with supply-side platforms (SSPs) — software used by publishers, and demand-side platforms (DSPs) — software used by advertisers.

From SSPs, ad exchanges collect data about impressions available for sale in the form of bid requests. From DSPs they solicit bid responses showing how much companies are willing to pay for their banner or video to appear on the suggested ad space.

All the requests and responses are managed automatically by the RTB algorithms running under the hood of SSPs, DSPs, and ad exchanges. Those algorithms send and receive RTB advertising data, complete transactions, and deliver the ads to be shown on ad spaces.

The ‘common language’ that SSPs, DSPs, and ad exchanges use to talk to each other is called RTB protocol. It’s a standard communication protocol that defines how bid requests and responses should be written and what data they should contain.

RTB Doesn’t Equal Programmatic Advertising

To dispel the most widespread misconception, we should emphasize that programmatic ad serving (or advertising) is a much broader concept than real-time bidding.

In other words, yes, open programmatic auctions happen exclusively with the help of real-time bidding. And no, you don’t need real time bidding for every programmatic auction type.

What the hell are we talking about? Well, you see, among 4 types of programmatic auctions, only 2 rely on RTB. Let’s break it down:

• Open Auction – this is the type of auction that automatically comes to mind when someone mentions programmatic advertising. It allows independent advertisers to participate in it, and the bids are placed in real time.
• Thus, the real-time bidding is the bread & butter in this case. The highest bidder wins the ad impression, usually using a second-price auction (the winner-bidder pays the second-highest price).
• Private auction/PMP – this is a programmatic auction only for the invited VIPs. The process is technically the same as with an open auction.
• The major difference, however, is that only invited advertisers can compete for the ad placement with their DSPs. The RTB meaning is still very high.
• Fixed price auction/programmatic guaranteed – in this case, there is no auction, so there is no need for real time bidding.
• Publishers and advertisers negotiate a fixed price one-on-one for a guaranteed number of impressions. They still buy them through a DSP, but the traffic is reserved for a specific client.
• Preferred deal/programmatic non-guaranteed – once again, there is no RTB advertising here. Both of these programmatic types are very similar.
• The difference is that in non-guaranteed deals (as the name suggests), there are no obligations. The inventory is not reserved for the one and only buyer, and the latter doesn’t even have to purchase the ad placement.

Let’s cement it.

RTB-based programmatic deals: open auctions, private auctions.

Non-RTB-based programmatic deals: fixed price auctions, preferred deals.

Now, let’s move on to its meaning in marketing.

How Real-Time Bidding Works

The real-time bidding process starts when a visitor opens a publisher’s website. The whole process takes less than 100 milliseconds, but a lot happens during that time:

1. A site sends an ad request to an SSP when there’s a chance to show an ad to a visitor.
2. The SSP collects the data about the visitor (cookies, location, etc.) and the ad space to pass it on to an ad exchange.
3. The ad exchange broadcasts the information about this ad opportunity to several DSPs.
4. Based on the targeting set by advertisers their DSPs bid on the potential impression.
5. The ad exchange receives ad responses and determines the highest bid that wins the auction.
6. The site visitor sees the highest bidder’s advertisement on the ad space that was sold.

Real-time bidding is all about communication between separate pieces of software. Without an RTB protocol, this communication wouldn’t be that effective.

What’s Inside the RTB Protocol?

The backbone of the RTB programmatic protocol is a taxonomy. Basically, it means that real-time bidding analyzes its ecosystem and classifies each of its participants into a structured hierarchy. What does it look like?

You see, the root is RTB. The first branches are its primary components like participants, auctions, data and targeting.

The second branches break these down further. Participants branch into advertisers, publishers, DSPs, and SSPs. And so on, until you have a detailed, organized system that explains the entire RTB ecosystem.

All of this is super-useful since it helps DSPs and SSPs to name and interpret pieces of data in the same way. In addition, the protocol contains rules for what data can be shared and how it can be used to make realtime bidding advertising compliant with data protection laws.

What Are RTB Protocols?

Fun Fact: There are several RTB advertising protocols available.

• OpenRTB

The hood classic and the cornerstone of most programmatic auctions is, of course, OpenRTB. Developed by IAB, its primary purpose is “to standardize communication between DSPs and SSPs.”

IAB names these as OpenRTB’s distinctive features:

• Usage of JSON for its messaging format, making RTB advertising lightweight and easy to work with.
• Support of complex bidding, targeting, and data sharing specifications.
• Continuous updates that include new features such as support for native ads, video, and advanced fraud prevention mechanisms.

Overall, there are several versions of the RTB marketing protocol. The latest is OpenRTB 3.0. Right now, IAB is working on improving security.

• Authorized Digital Sellers

De facto, ads.txt is not a real-time bidding protocol, but it’s an initiative that we can’t simply ignore. Ads.txt is an addition to OpenRTB created to “reduce fraud in buying and selling of advertisements.”

It’s a simple, flat text file used by publishers on their web ad servers that lists all the companies authorized to sell their digital inventory. This way, ads.txt prevents deals with unauthorized placements.

• Google’s Authorized Buyer’s Proprietary Protocol

Google was the pioneer of ad exchanges, so it’s only natural that they have their own version of RTB advertising. ABPP is an integral part of the company’s ads ecosystem, and it does its job well.

This version of RTB works flawlessly with Google Ad Manager and is quite safe.

Why is Real-Time Bidding Important?

Globally, 546 billion dollars were spent on inventory sold programmatically in 2023, according to Statista. The researchers expect the yearly sales to reach 725 billion by 2026, with most transactions happening on RTB auctions.

The global RTB meaning is growing because of the numerous advantages programmatic bidding brings to both supply and demand market players.

How Do Publishers Take Advantage of RTB?

In the early 2010’s, publishers worried that RTB platforms would enable brands to pay them less for their inventory. However, by selling their impressions to the most relevant and motivated advertisers, the RTB auction helped publishers earn the highest price per impression.

Now, with real-time bidding, publishers monetize their media better because they can:

• Virtually trade with unlimited advertisers to minimize unsold inventory.
• Monetize even small media with low traffic or narrow audience.
• Define a minimum acceptable price for their inventory by setting a price floor.
• Earn the highest price for each impression by selling it at multiple auctions.

Ultimately, RTB programmatic makes the publisher's revenue streams more stable and predictable. But what about buying media?

The Pros and Cons of RTB for Advertisers

With real-time bidding advertising, brands can automatically place ads in relevant spaces without much effort. Using their DSPs, they set up their targeting requirements. The DSPs select suitable impressions on open auctions, bid on them, and complete a purchase.

Aside from being a huge time saver, RTB makes paid marketing campaigns more productive and cost-effective by letting advertisers to:

• Minimize the manual labor involved in online advertising and hire a smaller team.
• Get access to the biggest selection of digital ad spaces and formats on the web.
• Set ad targeting to buy only high-value impressions shown to the right audience.
• Save money on second-price auctions and pay just $0.1 more than the second bid.
• Adjust, stop, or boost campaigns based on real-time performance reports.

To sum up, companies that leverage RTB programmatic don't have to buy inventory in bulk. Rather than wasting money on untargeted or irrelevant traffic, they consider every impression before paying for it.

What Technology Can Buy Traffic via RTB?

To participate in open auctions, a business should use a demand-side platform. They can use a self-serve DSP. In this case, a media buyer creates a free-of-charge, self-serve account in a third-party DSP and quickly learn how to get started with programmatic advertising.

On self-serve DSP campaigns, the ad spend includes the money paid per impression to publishers plus hidden bid markups. Businesses with small paid marketing budgets still benefit from this model, though. On low-volume campaigns, the vendor’s markup of 10-50% on every impression price doesn’t translate into big expenses.

Still, companies with big budgets might be willing to use a proprietary DSP to save money with real-time bidding. In this case, the company owns the platform and doesn’t have to pay any extra on top of their bids.

To have your own DSP, you don’t necessarily need to build it from scratch — in-house advertising is a long and costly adventure. You’ll need to hire an engineering team and allocate hundreds of thousands of dollars to the development. Afterward, you’ll need to cover expenses related to software maintenance, such as bug fixes and improvements. The result will depend on your team’s skills and experience. There’s no guarantee you’ll be fully satisfied with the software you get.

As an alternative, you can buy a white-label solution and launch it in a couple of weeks. When opting for a white-label solution, you’ll get dependable software from experts for a much lower price. Plus, you can test it before buying so that you know what you’re getting.

Real-Time Bidding FAQ

• What is the difference between an ad exchange and RTB?

  An ad exchange is a technology platform that hosts open auctions for programmatic media buying. The platform uses real-time bidding to process bid requests and replies from publishers’ SSPs and advertisers' DSPs participating in the auctions.

• Is it difficult to build a real-time bidder?

  If you intend to build your own protocol, don’t. That would be a waste of time and money, since the competition is too strong. If you are to build an RTB programmatic software such as a DSP, then just buy tried-and-tested white-label software, customize it, and start using it within weeks.

• How are bidding conflicts avoided in real-time bidding?

  It’s difficult to avoid competing with yourself if you run ad campaigns using several self-serve DSPs. These platforms might have the same SSPs among their traffic sources.

  It means each of your DSPs can potentially bid on the same impression sold by one of their common SSP partners. But if you use your own white-label DSP platform connected directly to a chosen list of SSPs, you won’t experience bidding conflicts.

• How is the final price per impression set in RTB advertising?

  The final price for an ad impression depends on three parameters: the publishers’ price floor, the highest bids of competing advertisers, and the type of RTB auction.

  The price floor defines the minimum amount to pay for an impression. The incoming bids define the maximum amount advertisers are willing to pay. The auction type predetermines whether the winning bidder pays the maximum bid (first-price auction) or the second-largest bid plus $0.1 (second-price auction).

• Are there any possible bottlenecks in the RTB programmatic auction?

  Your DSP might not bid on impressions even though your campaigns are active. There are a few common reasons for this. You may have set up your SSP Endpoint wrong, and its bid requests don’t come through. Your targeting may not match the SSP’s traffic type or geo. Your DSP might be too slow to send bid responses before your SSPs close their auctions. Your bid price is too low to win auctions. Or the impression beacon doesn’t count impressions correctly.

• Does Google use RTB?

  Google uses RTB technology to auction ad inventory provided by publishers and developers using Google Ad Manager, AdMob, and AdSense. Google’s ad exchange supports two implementations of oRTB protocol (JSON and Protobuf) and Authorized Buyers proprietary protocol (often called simply Google protocol). The latter is used for most RTB programmatic transactions in Google’s ecosystem.