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Real-time Bidding: The SEM Perspective

poirier-marc-2012
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Our SEM world is changing and display advertising is becoming an important part of the search marketer's arsenal. One main reason this is happening is price discovery -- the ability for marketers to test different prices for different ad impressions by taking into consideration hundreds of data points. Of course, this process has always been available to search marketers, not so for display buyers.

In search, every ad impression, including its price and position, is determined each time a query is made based on a number of criteria. A combination of variables, such as max cost-per-click (CPC), keyword quality score, or click-through rate (CTR), competitive landscape, geographic location of searcher, and many more, determines how much money an advertiser will end up paying if the searcher clicks on the ad.

Old School Display Almost Ruined Everything

In display advertising, the old model, which is still by far the most prevalent, works like this:

A publisher wants to monetize their website. They outsource some or all sales to an ad network who will then sell media for them and take a cut (often 50 percent of revenue).

On the other side of the equation, advertisers are looking for an opportunity to advertise. They turn to an agency to help them with the media buying process. The agency takes a 15 percent cut of the media spend for their trouble.

So for every dollar spent by an advertiser, the rep house gets 50 cents and the agency 15 cents, then there are ad serving fees, and I probably forgot a few more taxes, which leaves less than 35 cents for working media.

Obviously, this means that a lot of people are dipping their fingers in the pie, and there isn't a whole lot of media left for each dollar spent by the advertiser. This model makes it easy for advertisers to buy media, but it also makes it difficult for marketers to get a return on their investment. And it's why the old model has lost so much steam.

Along Came the Ad Exchange

Ad exchanges were created a few years ago to bring some fairness to the world of display buying and selling. The idea was to create a fully automated marketplace where display media would be auctioned off.

There were only a handful of real ad exchanges, and they usually only worked with large networks, agencies, and publishers. Most of us didn't experience the first generation of exchanges, simply because most of us don't get to buy millions of dollars of display ads every month. Exchanges are still very much part of the display revolution, but they will become more widely available and their role in the process may change quite a bit.

RTB -- Display Exposed

Things are looking a lot better in the world of display, and this is mostly due to the advent of real-time bidding (RTB). RTB is the ability for the bidder to take a look at every single impression and to place a bid.

For price discovery to work, every single ad impression must be sold individually -- one impression at a time. This is what makes RTB so interesting. Every ad has a different value as determined by dozens, hundreds, or even thousands of variables such as the site it appears on, what size the ad is, where on the page it is located, the number of times the ad was seen by the visitor, the fact that the visitor has actually been on our website before, moreover, in fact the amount of data that is available for RTB is staggering in many cases.

So here's how real-time bidding works:

  1. Someone lands on a publisher's web page. An auction is triggered instantly to find the right buyer for each ad spot on the page.
  2. The marketplace sends out a bid request to all eligible bidders (there are dozens of RTB-enabled platforms already operating in the market).
  3. Bidders have to respond in a fraction of a second with their offer for the specific ad while taking into consideration all the data that is available.
  4. Someone wins the auction, the ad request is made to their ad server, and the ad is returned to the web page.

It's not surprising that RTB and demand-side platforms (DSP) are getting a lot of attention this year -- as Google, Microsoft, and Yahoo have all committed to offer RTB, advertisers need to start getting organized, and DSPs are exactly what they need to be able to enter the game and place their bids. You can be sure that AdWords and adCenter will be pushing out display to the masses shortly.


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