Time is money — a cliché that rings very true in the realm of digital advertising today.

As consumers, each gadget we pick up (and put down), every website we visit (and leave) and all the ads we see (and ignore) work together to decrease our attention span. Advertisers have milliseconds to capture our attention and evoke enough interest from us to elicit a positive action.

For this reason, companies including AT&T, American Express, Toyota and other easily recognizable brands (see sidebar) are turning to real-time bidding (RTB) in droves. In fact, eMarketer expects RTB to enjoy a 72.4 percent growth in U.S. ad spending for 2013, equivalent to a projected $3.4 billion market.

What is Real-Time Bidding?

Real-time bidding is a method of buying and selling advertising inventory one impression at a time and doing so in a “live” or auction-style environment.

“Placements on websites are sold much like billboards on highways and may be pre-sold via contracts or live via RTB,” said Rubicon Chief Scientist Neal Richter, PhD. “With RTB, when a user visits a website the ad server then places the ‘impression’ out for bid via a predefined protocol. Once bids are received, then an auction is held, the highest bidder wins and their ad is shown to the user.”

This dynamic online advertising environment, manifested through a very intricate process (see next page), can provide hyper-relevant ads to a user based on the information a publisher shares with advertisers (e.g. user location, products viewed, etc.). Despite the obvious complexities of programmatic buying, the full information exchange is completed in less time than a blink of the eye and typically without disrupting the user experience.

RTB for All?

RTB is causing some disruption, however, namely between advertisers and publishers.

While publishers can use RTB to offer any inventory not sold via pre-negotiated contracts — reducing the overhead of traditional sales efforts by automating the sales process — publishers lack control over ad prices. The result, from the perspective of publishers, is that RTB ad exchanges are driving down CPMs. Some RTB networks disagree, saying the real reason for lower CPMs is the way a publisher’s inventory is set up.

Chango’s CEO Chris Sukornyk tells Website Magazine that publishers can make positive changes to maximize ad exchange revenue right away. For example, if a user searches for “cars” on a website, the URL in the browser should show site.com?search=cars, not just “site.com,” as the latter leaves out key information that fuels bids. Sukornyk provided several other tips to maximize ad exchange revenue, which are available on the Web at http://wsm.co/MAXAds.

In addition to steps publishers can take to increase earnings, many advertising platforms expect CPMs to go up, including SiteScout.

“I think a shift toward quality inventory will also take place, which will force buy-side platforms to begin evaluating solutions for offering programmatic ‘premium’ inventory,” said SiteScout Director of Marketing Ratko Vidakovic. “That is, more expensive but higher-quality impressions, possibly on a guaranteed basis.”

The word “guarantee” is not one often heard in the RTB world, as it is ultimately an auction. “In other words, you cannot promise an advertiser they will win X amount of impressions during a certain period, for a certain price,” said Vidakovic. “Someone else could end up out-bidding them, or the volume of impressions that meet their target criteria might simply be unavailable. Some of this is an inherent byproduct of the auction-based pricing model. The other part is a result of the segment and volume of inventory that publishers choose to expose to the RTB ecosystem.

“Publishers are wary of exposing their entire inventory to the RTB channel for fear of cannibalizing their high-CPM direct ad sales — also known as ‘guaranteed’ inventory. Such deals usually involve a contract with the publisher or ad network directly and often yield the highest revenue for publishers, especially ones with coveted inventory.”

Nonetheless, the adoption of RTB is increasing, specifically among major national companies. Index Platform, a digital advertising technology provider, reports that in Q2 2012, 57 percent of major national companies used RTB in North America. Some publishers, however, are slow on the uptake, because they do not have an acute need for RTB. Richter counts super premium publishers who sell out everything — or close to it — among that group. All publishers and advertisers, as well as their agencies should understand RTB technology, however.

This is because, as you would expect, real-time bidding goes a long way in both an advertiser and publisher’s ability to provide users with a personalized experience, which can increase the likeliness of a user’s interaction with an ad.

“By evaluating each ad impression individually and using those characteristics, you end up with highly targeted campaigns,” said Vidakovic. “Another advantage to this model is that you can apply cookie data to the auction process to see if the impression you’re about to bid on has some kind of behavioral history. This leads to a very efficient market-driven pricing model. Instead of buying page views (impressions) in bulk, advertisers are now buying them individually, which is calculated and priced as an effective CPM or eCPM. Lastly, since RTB is powered by a multitude of ad exchanges, the audience reach available to advertisers is practically unparalleled in online advertising.”

RTB Implications

Real-time bidding is dramatically changing the digital advertising landscape. While it may appear to many as a highly complex mechanism, technologists, such as Rubicon’s chief scientist, consider it a low-level mechanism in its basic form of automating individual page-view auctions and think it has room for advancements. While RTB is a significant departure for both advertisers and publishers, the numerous benefits for many outweigh the drawbacks (at least as it stands today).