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Real Deals: Explaining RTB

Alex Spencer

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New technologies often have their roots in older ones, and sometimes they are re-invented by using new terms to describe them and to develop a new market. Real-time bidding (RTB) is one such example. The term is a major buzzword in mobile advertising, but it has an online heritage that goes back to around 1998. 

It began with companies such as GoTo.com, which was taken over by Overture before becoming part of Yahoo! Search. Google became a key player too. 

RTB has its roots in search engine marketing (SEM). It allows advertisers to bid on keywords, and allows them to control their advertising budgets on a cost per click (CPC) basis. 

Like all ‘new’ technologies (not to mention buzzwords), confusion is never far away from RTB. “Many players in the mobile advertising industry don’t really understand RTB and since it has grown significantly in recent years, there is a need to educate media buyers and publishers to help them to understand how the technology works,” says Ragnar Kruse, CEO of Smaato

Explaining RTB

So what does RTB actually do? Kruse explains: “RTB is an online automated auction system where the demand side – companies that want to place advertisements – bid for mobile inventory in real-time. They base their bids based on various targeting criteria in a fully transparent way.” Publishers and app developers can gain higher prices for their valuable traffic because they are able to set floor prices, and advertisers pay a price based on the value that individual impressions present. 

RTB platforms also allow publishers to black or white list advertisers in order to add or remove certain types of inventory. This ensures that a competing product isn’t promoted from within their own mobile game application, for example.

RTB platforms also allow advertisers to ensure that they are not advertising on an inappropriate website or on a competitor’s one. “The system offers a significant advantage to publishers and media buyers at it links multiple demand-side platforms (DSPs) into a single RTB exchange to give advertisers access to a wider range of potential advertising spaces (publishers’ inventory), and they can find audience to target at scale,” explains Kruse. Publishers can at the same time access a wider advertiser base than they would by using traditional advertising methods, he says. 

However, the market is being flooded with so-called RTB platforms, but they’re not all created equal. Adam Soroca, Jumptap’s chief product officer, says: “There are tens of companies that are claiming to have RTB capabilities, but this doesn’t mean that they are all sophisticated in their approach.” The ability to scale campaigns and to process the volumes of traffic data that emerges from them are key differentiators between the smartest RTB platforms and the rest. 

There must be some consideration of how an RTB platform gathers and interprets data, and about how sophisticated its bidding algorithms are to inform the bidder. For example, the advertiser could use data on location characteristics, or time of day that a particular audience interacts with an ad. It’s possible to capture details about the site from which the traffic emanates. By analysing this kind of data, the advertiser can assess how much a particular consumer is worth, and make strategic decisions based on that. 

Apps growth

Mobile apps have also been key to the growth of RTB as a mobile marketing and advertising tool. “Mobile is different to online because of the app ecosystem: a lot of people with smartphones and tablets download and interact with applications, but with a mobile website an app is within the web browser and so the tracking is different,” says Alex Rahaman, CEO of StrikeAd, the first company to launch RTB in the mobile space. He says it’s surprising how mobile applications have been developed - pointing out that their success hasn’t always come from large companies. SMEs have often led the way. 

“A small games publisher in Australia created the global phenomenon that is Fruit Ninja, which is absolutely huge. These app developers are dotted around the world and rarely have advertising sales forces,” says Rahaman. As of May 2012, for example, the fruit-slicing game had amassed an estimated 300m downloads. RTB was used to achieve this success as a source for ads. It helped to drive revenue through to all of the publishers in a way that would not have been possible in the old world of advertising, says Rahaman. 

“RTB isn’t based on a telephone call as it’s a real-time exchange environment like a shares trader on a stock market. It’s analogous of a stockbroker moving shares electronically from one place to another,” he explains. 

Due diligence

To get the best out of RTB, you first need to get the technology right, says James Connelly, co-founder and managing director of Fetch. You then need to have the most appropriate partners in place. He suggests that this can be assessed by thoroughly undertaking due diligence. “There are some fundamental features that are required by certain partners, such as the ability to apply a universal frequency cap to stop your advertisements from appearing to the same customers multiple times because when you are using a DSP and RTB you are typically buying from more than 10 exchanges, and within them there may be the same sites fishing in the same pond.” 

He says that there is also a need to have ID-based data in place to allow advertisers to target their customers appropriately, and it’s imperative to keep it in order to learn more about each customer. By doing so, it is possible to send out the most appropriate messages for a particular customer group, depending on their position in the customer lifecycle. 

Gain visibility

Connelly cites some other advantages of having an RTB exchange on a mobile marketing platform: “One benefit is visibility because in mobile over the last few years many of the purchases have been blind. But with RTB you know where the ads are going and how they are performing because we can use the data, and so it ensures that market rates remain low as you are bidding against the market in real-time.”

This in turn means that over-charging becomes difficult to do, and the data permits advertisers to make better decisions about where to spend their money and how to respond to trends that emerge from analysing the resultant campaign data.

Kruse adds that RTB is relevant to mobile marketers because “marketers gain a huge reach and they can buy their audiences based on an impression level; they can use Apple Advertiser ID for iOS or Android ID mobile devices to identify a specific device, and this creates some amazing re-targeting capabilities.”

He adds that RTB–based exchanges can also offer location-based advertising as an option on a large scale. He nevertheless views RTB’s online heritage, which was based on cookie tracking, as becoming very antiquated. Mobile RTB is server-based, and so he argues that is far more effective and efficient than its online equivalent. 

Growth area

While the industry might be getting its head around the technology, analysts believe that RTB is set to continue to gain pace. The International Data Corporatation (IDC) reported in 2012 that RTB growth in the UK will outstrip that of the US, France, and Germany until 2015. The research firm also predicted that by 2015, total expenditure on RTB will equate to $680m in the UK and $1bn in the US.

The main barrier to RTB domination may be in the industry's understanding of it, but Smaato’s Kruse says: “the world is definitely jumping on mobile RTB, for the sole reason that it is the most effective and efficient advertising model available today.”