• by Skip Brand , February 11, 2014

RTB is causing a major paradigm shift in how online ads are bought and sold, says Michael Smith, vice president of revenue platforms and operations at Hearst Magazines Digital Media. He compares RTB’s importance to when search marketing first came out. Long-term, all media will be purchased through RTB, Smith predicts.

“It’s too compelling a technology for marketers and advertisers not to harness,” he explains. “In RTB, more of the ad decisioning happens on the buyer’s machines than on the seller’s machines. It’s a very useful way to buy advertising, when you can make a decision about what price to pay for a user in the moment.”

At Hearst, RTB complements the media outlet’s existing full-service sales efforts, and Smith thinks that its role will grow exponentially.

At Hearst, advertisers buying non-guaranteed RTB units on the private auction actually pay more on a CPM basis than full-service guaranteed instertion order clients, which is atypical elsewhere. Why? The buyer is not making a volume guarantee. “Full-service non-guaranteed business is sold at rate card,” explains Smith. “We sell a lot that way. It’s a good product for buyers, who don’t want to make a guaranteed commitment, but are willing to pay a premium rate for the selective impressions that they want to serve.” 

Smith says that CPMs will continue to go up in programmatic buying and selling because of the increasing number of buyers and sellers in the marketplace, which he says is creating fairer prices for both parties. “Prices are going up, not down,” remarks Smith. “The concept that RTB, ad exchanges, ad technologies and middle men are all in a race to the bottom is completely not the case. The opposite is true. The pricing that Hearst sees is reaching a state of market equilibrium that is indeed fair.”

Smith admits it's still possible for some buyer somewhere to buy an impression for a penny, but says that's not really the way business is conducted at any scale. “It’s an auction with a lot of buyers, and they’re bidding against each other, and prices go up and reach a state of equilibrium that we’re quite happy with.”

Smith expects private exchanges to grow. “Over the next year, buyers will look to do more private exchange deals,” he comments. “At the moment, a lot of the money comes from public exchanges, but the private exchange part of the market is starting to see real money flow into it. So there’s an increase in the number of full-service, non-guaranteed deals we’re doing.”

Smith concludes that RTB is going to forever change the way that advertising is bought and sold across media. “All media will be purchased this way in the future -- on television, mobile phones, video and social,” he says. “It’s all becoming auction-driven RTB technology.”