The Rise of Real-Time Bidding

If you're at all familiar with the digital media world, there's a good chance you've heard of real-time bidding, or RTB.

Instead of purchasing an entire block of inventory, which may or may not be correctly targeted, RTB lets marketers target specific users based on their Internet behavior and then bid for the chance to deliver the impression. The model is similar to Google AdWords, but revolves around display advertising on large advertising networks. 

Though a lot of people now know about RTB, what many don't yet realize is that RTB is not just another new advertising tool - it's already a major industry in its own right, and it's poised to get even bigger.  

Kirby Winfield, SVP of corporate development at ComScore, says RTB already accounts for 20 percent of all display advertising and predicts it will be a $3 billion business by 2013. The International Data Corporation calculates RTB-based spending will be 27 percent of display ad spending in the United States by 2015 and 25 percent in the United Kingdom. Analyst firm Parks Associates believes RTB will be a $6.8 billion business by 2017. These figures may seem high, but RTB has grown 700 percent in just two years. Google has invested $1 billion in RTB since 2009, and the biggest players in the tech world - from Yahoo! to Microsoft to AOL - are racing to gain a foothold in this emerging business.

Just in case we needed any extra proof that RTB had officially arrived, we got it in June when Mark Zuckerberg announced Facebook Exchange - an RTB ad exchange for the social network. It operates in a similar manner to traditional RTB exchanges but works on the Facebook platform. 

Though some publishers complain that ad exchanges have driven down CPMs, RTB has become extremely valuable to publishers. RTB allows publishers to sell remnant inventory that they otherwise would only be able to sell if they had a direct sales team, which is too expensive for most publishers to keep on payroll. RTB also makes selling ad inventory much more efficient because there's no longer a middleman between buyer and seller. Remember the old days when publishers had to wait until a media planner faxed them an RFP to make a sale? Most publishers would rather forget.

In addition, the data accrued from RTB provides publishers with a ton of actionable data they wouldn't have had otherwise. This data makes it a lot easier for them to optimize their content and ad units to attract the most advertising dollars.

Over the next few months, the 2012 presidential election should also provide a boost to RTB, as politicians and PACs are desperate to deliver targeted advertisements that win votes. RTB is also moving beyond display into premium units, mobile, email and other forms of digital advertising. According to Forrester, video RTB will account for 22 percent all video advertising spending by 2013. 

So, what accounts for the rapid rise of RTB? The first factor is the massive amount of remnant advertising inventory available across the worldwide Web. Site owners support the development of RTB because it makes this inventory more valuable. All this inventory also offers plenty of opportunity to experiment with what works best.

The rise of big data is another major contributing reason for the growing prevalence of RTB exchanges. The technology only works if it can target individuals, or types of individuals, quickly and effectively. This requires parsing millions and billions of bits of data into useable forms, something that was not realistic until recently. 

Technology, in other words, made RTB possible. And by making digital advertising more efficient, RTB, in turn, is making technology more valuable.

About the Author

Ben Plomion is the Director of Marketing and Partnerships at Chango, a search retargeting company. Prior to joining Chango, Ben worked with GE Capital for four years to establish and lead the digital media center of excellence.