Real-time bidding (RTB) is a relatively new advertising technology that allows online advertising to be purchased and served on the fly. Instead of reserving prepaid advertising space, advertisers bid on each ad impression as it is served. The impression goes to the highest bidder and their ad is served on the page. The closest analogy would be to the stock market: as stocks (online advertising spaces) come up for sale, brokers (advertisers) bid for the stock. Whoever bids the highest price gets that stock (the ad is served). Then the process immediately starts all over again.
How do advertisers decide when to bid on an ad? Real-time bidding (RTB) platforms buy data about users from across the web. The data is usually in the form of behavioral data gathered from tracking cookies. This information is then fed into the real-time bidding platform, giving advertisers insight into who is about to be served the ad.
Here’s a simplistic example of how real-time bidding (RTB) would work in the real world: A user spends a lot of time on financial websites, checking stocks and looking up Morningstar ratings. They arrive on a webpage that uses Real-Time Bidding to serve ads. On the back end, a major financial services provider has specified that they are interested in users that like stocks. A luxury carmaker has also indicated interest in this audience. The RTB system matches these advertisers with the user profile and they bid on the ad. Whoever has the highest bid wins, and their ad gets served.
Of course, all this happens in the blink of an eye. Advertisers don’t literally sit and bid on individual ads. Like Google AdWords, they set maximum bids and budgets. The user criteria can also be very complex, taking into account everything from very detailed behavioral profiles to conversion data.
The amount of ads sold through RTB is still relatively low percentage of the overall $26 billion US online advertising market. However, a recent study from Forrester predicted that RTB spending will increase 130% from 2010 to $823 million in 2011.
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