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The Nuts and Bolts of Real-Time Bidding

October 17, 2022  ·  6 min read
Kseniia Kyslova
Kseniia Kyslova, Senior Marketing Copywriter at Epom

‘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 misconceptions and unclarity.

Aren’t you here because of confusing controversial RTB definitions? Now is the time to cross your t’s and dot your i’s. Together we’ll learn what real-time bidding is, how it works, and how you can take advantage of it.

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.

Contents:

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.

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 data, complete transactions, and deliver the ads to be shown on ad spaces.

The ‘common language’ that SSPs, DSPs, and RTB 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 media buying (or advertising) is a much broader concept than real-time bidding. It’s an umbrella term for three types of automated digital ad space trading:

  • Programmatic direct doesn’t require you to participate in any auctions at all.
  • Programmatic guaranteed means you take part in private, invite-only auctions.
  • RTB programmatic implies that you buy impressions on open auctions.

For a deeper dive into the difference between the three types of automated media buying, check out our programmatic vs. direct advertising comparison.

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 process chart

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 protocol is a taxonomy. 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 RTB compliant with data protection laws.

There are several RTB protocols available. For example, Google’s services use the company’s proprietary version called Google’s Authorized Buyers-proprietary protocol. Yet, the gold standard is OpenRTB (ORTB) developed and maintained by the IAB Tech Lab.

Why is Real-Time Bidding Important?

Globally, 418 billion dollars were spent on inventory sold programmatically in 2021, according to Statista. The researchers expect the yearly sales to reach 725 billion by 2026, with most transactions happening on RTB auctions.

Global programmatic advertising spending from 2017 to 2026 by Statista

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

How Do Publishers Take Advantage of RTB?

Publishers worry that RTB will enable brands to pay them less for their inventory. However, by selling their impressions to the most relevant and motivated advertisers, the RTB auction helps publishers earn the highest price per impression. 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.

The Pros and Cons of RTB for Advertisers

With RTB technology, 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 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 to Use to Buy Traffic via RTB?

To participate in open auctions a business should use a demand-side platform. To get started, they can use a SaaS solution. In this case, a media buyer creates a free-of-charge, self-serve account in a third-party DSP and quickly set their first ad campaign.

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. 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 — it’s 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—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. Real-time bidding is the protocol that the platform uses to process bid requests and bid replies from publishers’ SSPs and advertisers' DSPs taking part in the auctions.

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

    To build an RTB programmatic software you need a lot of time, effort, and money. Aside from that, you can’t be sure your team will deliver a solution that meets industry standards and your business needs. Yet you can take a shortcut and 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 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?

    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 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 it’s 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 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).

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