• by Rajeev Goel , February 17, 2010

EBay didn't start because people wanted to buy efficiently. It started with one person wanting to sell a specific item at the highest possible price -- in this case, it was a broken laser pointer. This analogy works for Real-Time Bidding (RTB), except that it's a trend started by buyers.

Real-time bidding, the process by which advertisers assign individual value to a particular ad impression, was driven by demand side entities (ad networks, agencies, etc.) to reduce waste in ad spend. These same entities have largely driven the technology innovation for RTB, and therefore seem to reap all the benefits where every dollar performs and is accountable.

However, if we continue the eBay analogy, buyers surely get what they want, but it's the sellers that drive the marketplace and should also be cashing in. For RTB to work, it must be a truly competitive bidding environment with multiple sellers that can give full transparency on every single impression. This is essential for ensuring consistent and continuous revenue growth for the sellers.

Both Demand and Supply Win, Theoretically
Real-time bidding will test of how basic economic principles of supply and demand affect online advertising.

Our initial tests with multiple RTB buyers and a select number of sellers show significant CPM improvements for publishers compared to industry average CPMs. However, because this is a bidding environment, a high price is not guaranteed. With RTB still in its infancy, and with a relatively small number of RTB advertisers, there is not enough competition for single impressions. Hence, a lucky advertiser could get the ad space for below market pricing.

Ensuring that there are enough bidders to maintain the value of the publisher's ad space is part of the challenge. If advertisers find the user they want to reach, they are surely willing to pay a premium to reach that user before competitive bidders do - but they still want to pay the least amount possible in order to reach that user. This is logical, but difficult to act on without enough data on the user and without the system in place to automatically serve an ad at the value that advertisers are willing to pay with consideration to the competitive bids.

Online publishers have a responsibility to provide enough supply, with enough data on each impression to empower the buyers to bid. One can argue that with less supply, the sellers will control the value in the market. Unfortunately, the market will fail at the start if supply is limited where it would not be worth it for buyers to invest the time, effort and resources without the scale. As the growth of eBay and even Google AdWords has shown, competitive bidding environments have a way of right-sizing the value of a market. Publishers who gripe that ad networks have de-valued their inventory are now in a position to take back control.

No Competition Without Data and Transparency
The majority of RTB transactions we have facilitated for publishers originate from companies with campaign optimizing algorithms that work on behalf of the advertiser. For example, the demand-side platforms that optimize an advertiser's campaign continually adjust their pricing during the course of the campaign in order to reach the right audience, at the lowest price possible to reach them.

Advertisers finding the lowest price possible doesn't speak well for publishers. This makes data much more important. This has driven the markets for data providers like BlueKai and eXelate. Publishers should realize that with enough transparency, the real-time bids will have to be increased if advertisers want to reach that target audience at the precise moment that is ideal in the audience mindset. This is what publishers control, where they know that their audience is on their site for a specific reason. Capturing that mindset and making it available at that precise time will lead to an increase in bids.

Will 2010 Be the Year for RTB in Scale?
It could be several years or longer before there are enough real-time bidders to ensure market-wide high pricing for the publisher. However, publishers with enough inventory and enough data are in a position to reap significantly increased ad dollars from RTB. With more sell side platforms facilitating real-time bids for publishers in 2010, expect this year to have some great success stories that could set expectations for the years to come.