The Possibilities and Myths Surrounding RTB by CPX Interactive CEO, Mike Seiman
In today’s digital advertising landscape, perhaps nothing has been more over-hyped than the proposed panacea known as Real Time Bidding. The promise of RTB has always been that it will allow publishers to auction off their traffic to the highest bidder in milliseconds, while allowing advertisers to pick and choose the audience they want to buy in those same milliseconds. There is no doubt that a seamless RTB process has the potential to be an extremely powerful way to advertise for brands and direct marketers alike. The truth is, however, that there are a lot of things that need to work perfectly in order for that to happen and we, as an industry, are really just not there yet.
While it may be an oversimplification to say that RTB is just the newest ‘flavor of the month,’ it does seem that every player in the display advertising landscape is jumping on the bandwagon to build technology to plug into it. The enthusiasm is based on the premise that this is what brands truly want. But do brands really know enough about RTB to make an educated decision about it? Do they understand, for example, the inherent hidden costs of an RTB campaign and its limitations?
To begin with, there will be a significant cost to technology providers for the excessive processing power it will take to run a truly scalable RTB system. This cost will be passed onto the advertisers. Additionally, if everyone was just bidding on every available impression it would be simple: bid, win, bid, win, etc… But this really is not the way RTB will work. Once advertisers start picking and choosing your bids, they must take into account that all the bids they lose still cost them something. On a bid by bid basis, that might not mean much. But what if, however, your ad serving cost is $0.10 CPM. If you only win one out of every ten bids, then you’ve just added a serving cost of $1 CPM just to compete. Now that is certainly not the efficiency we all talk about as the promise of digital advertising.
So, if there will be additional costs to advertisers, let’ take a look at what is it that that they will actually be paying more for?
To better understand what we are really bidding on, we have to put RTB inventory into perspective within the total landscape of online ad sales. First, there is a website’s direct sales force. Let’s say that these internal sales efforts count for 40% of a website’s inventory. (You’ll have to trust me that this is a pretty good average for most publishers.) That leaves 60% up for grabs. The next piece of the inventory pie is usually given to the ad networks and supply side systems that are big enough to deliver significant scale. There are probably no more than 20 of these. Fitting into this category, CPX Interactive buys approximately one billion impressions daily. If we assume that each of these 20 networks on average do about the same then, the next 20 billion impressions a day are accounted for, leaving the remainder for Exchange/RTB space? So what is likely to be the quality of the impressions bought thru the RTB model?
I agree that it is ironic that while having built my company’s foundation fighting the ‘value in remnant’ fight, I must now make the argument that advertisers simply are not interested in inventory so far down the chain, but the truth is that the scars from that fight give me the perspective to know that it is true. RTB inventory is simply not attractive enough to advertisers yet to make it a scalable and efficient primary way for the industry to do business.
Let me be clear. CPX Interactive has absolutely built RTB capability into its proprietary platform, CPX adroit™ and we plan to remain in the lead with all the industry moves toward full RTB industry integration. My point in writing this article is just to say that we are not going to get carried away by the hype du jour that seems to be swirling around it. We believe that the idea may well be the future of the industry and that, one day RTB may just become mainstream enough that all impressions on every site will be up for bids. That point, however, could be a number of years away. In the meantime we will keep playing with the idea, testing some of the available inventory and keeping the industry informed on our results.
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