Real-time bidding (RTB) has changed the digital advertising software landscape forever.Ad impressions are bid on and sold in the matter of seconds––with the help of a demand side platform (DSP)––bringing a whole new level of competition to the ad buying game.

While the term real-time bidding is tossed around in advertising meetings willy-nilly (or if someone’s trying to sound smart), it’s still a complicated concept to grasp.

Many times the question remains: What is real-time bidding? And how does it work?

What is real-time bidding?

The process of RTB begins the moment a user opens a new webpage. As online content loads in a web browser, an ad impression loads with it––while this occurs, information about the page and the user viewing it are passed along to an ad exchange.

The ad exchange auctions off said ad impression to the advertiser willing to pay the highest price for it. When a winner is determined, their chosen ad is then loaded onto the webpage instantaneously. Amazingly, the entire RTB process takes only milliseconds to complete.  

Advertisers typically use demand side platforms to help determine which ad impressions to purchase and how much they’re worth. DSPs rank ad impressions on a variety of factors including the sites they appear on and previous user behavior.  

For example, Urban Outfitters might view user behavior data to recognize that a particular individual has previously been on their website browsing for winter jackets. Using this information, they can analyze and ultimately decide how much they are willing to pay to serve ads to this particular user.

While they would likely pay more than companies like Best Buy or other non-clothing oriented providers, companies like Nordstrom and H&M would provide competition. Urban Outfitters would then have to decide exactly how much they are willing to pay before it become cost ineffective.

Why does real-time bidding matter?

Advertisers have traditionally plastered their ads directly on a website that is relevant to their target audience. If they want to reach sports fans, they would buy ads on ESPN. If they want to reach new homeowners, they would buy ads on Wayfair. Pick your target and hit it.

The advent of RTB (or Header Bidding) has significantly refined this process. Instead of targeting a diverse, scattered audience, advertisers are able to direct their ads to specific users instead. Less generalization, clearer target, more efficient use of ad resources.

Why is real-time bidding good for advertisers?  

It’s efficient for everybody involved. Advertisers no longer need to work directly with publishers to negotiate prices and traffic ads. Using DSPs, they can access a massive inventory across a wide range of sites––this allows for a more selective process, cutting down on ad impressions that reach the wrong users.

Want to read more on advertising and marketing strategies in general? Check out the how you can leverage interest-based advertising in 2019.