“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Eric Berry, CEO at TripleLift.
There’s a profound and seemingly inexorable movement in which each year we see a higher percent of media traded via real-time bidding (RTB).
At face value, this makes sense. RTB allows advertisers to bid on what an ad is really “worth,” and in its purest incarnation, it is the most open because it allows data, valuation techniques and complex attribution to be effectively utilized throughout the entire ecosystem.
But RTB also has a well-documented dark side, potentially bringing with it a loss of control, risk of data leakage and price erosion for publishers.
In a world of ever-more-powerful closed platforms, there are genuine questions of whether RTB is really a huge growth engine for advertising technology and the height of efficiency. With scaled platforms growing in prominence, headed forcefully in the other direction, what are the ramifications for the industry?
The Two Sides Of RTB
It is unlikely that publishers would describe the advent of RTB as an improvement if they have seen CPMs decline or find themselves fearing stolen audiences and scrambling to find new sources of revenue. But publishers that have intelligently applied data, leveraged smart, programmatic-first sales forces and created sophisticated private marketplaces and alternative channels, such as custom executions and native, have probably done well in stemming the losses or improving overall revenue.
For advertisers, the cost of media purchased via RTB is generally lower and more targeted, often resulting in a higher return on ad spend. RTB allows an unprecedented degree of control, with no contractual requirements allowing advertisers to dynamically allocate spend across thousands of publishers. Ideally, advertisers could create and manage global campaigns with unified frequency targeting, dynamic media allocation and cross-platform attribution from a single interface. Unfortunately, this remains an unlikely scenario. Instead, advertisers face fraud and viewability challenges and a highly fragmented ecosystem with platforms creating closed ecosystems.
Uncertain Fate
There is a clear movement toward platforms eschewing RTB altogether. Facebook, Google, Apple, Yahoo, AOL/Verizon, Twitter, Comcast and maybe Pinterest and Snapchat control their respective ecosystems end to end. Facebook’s moves show a clear shift away from RTB toward its proprietary identity-based data, and it is rapidly replicating the functionality that might otherwise be desirable, such as product-based retargeting.
Google technically supports RTB through the DoubleClick Ad Exchange, but eliminated it for YouTube and has introduced a series of moves to squeeze out third parties, including offering enhanced dynamic allocation in DoubleClick for Publishers.
Of all major platforms, Apple’s corporate philosophy is completely antithetical to RTB from a data perspective because its reliance on the use and mobility of data is at odds with its strict privacy stance. It’s conceivable that future moves will further strangle the industry out of OS X and iOS.
The list continues: Yahoo has moved forcefully toward a native product that doesn’t allow RTB, while Pinterest and Snapchat barely consider the ecosystem.
If the world is indeed converging toward closed platforms, as some believe, RTB may not have a future. Instead, the likes of Facebook, Google and AOL serve as the gatekeepers to their proprietary inventory and data.
However, it is very much in Google’s interest to ensure the platforms don’t rise to a level where they close off the web and significantly erode its relevance. Recent moves underscore this motivation, including Google punishing mobile websites in search that promote the apps with too heavy-handed of an approach. This, when combined with Facebook’s stagnating growth and recent data showing mobile web utilization growing relative to apps, signal a future where there won’t be a collapse into an entirely platform-driven world.
RTB Gives Buyers More Power
Notwithstanding the question of whether platforms prevail, if RTB were definitely as efficient as promised, why would platforms be moving forcefully in the other direction, and why would advertisers stand for it?
The answer is that RTB gives more power and money to the demand side. Even in simplistic terms, a demand-side platform (DSP) takes a service fee and dynamically allocates budget. RTB becomes irrelevant and the platform becomes a strategic part of every relevant media buy if it is large enough to serve as a line item in its own right, takes a relatively fixed commitment, cuts out the DSP and other fees and controls the data. This shifts power from the demand side to the supply side.
Further, given the size and sophistication of platforms, it’s quite possible they provide some of the best optimization available, especially in conjunction with their proprietary data.
The impact of non-RTB-enabled platforms on the RTB ecosystem is obvious, but perhaps the better question is whether the rest of the digital world is better off because of RTB – and thus whether it has staying power for the non-platform ecosystem.
An increasingly common realization following a rise of distrust in open exchanges is that it is not necessarily better. Real-time valuation was largely accepted as an improvement for direct response advertising, which can be measured and optimized directly. For everything else, which constitutes the majority of advertising, the objective is reach and frequency for endemic publishers on highly viewable, high-impact placements – not something that can necessarily be “valued” and thus not something that requires real-time “valuation.”
As a result, the movement shifts toward programmatic direct, with known publishers offering trustworthy inventory at transparent pricing without black-box optimization. This means advertisers have control over reach and frequency, optimization toward more viewable, human audiences and better contexts. Publishers have control over pricing and channel conflict.
Through the evolution of the ecosystem, we have seen that blind RTB-based buying on the open exchanges is not necessarily better. Substantial arbitrage margins were extracted, leaving many publishers worse off while significant fraud risks eroded trust.
Tomorrow’s RTB
The future of RTB is one of trust-based automated buying. Programmatic direct will likely move RTB from being a pure direct-response dynamic valuation methodology to a branding-enabled media allocation tool.
In turn, because the prices and bid reductions become more transparent in the programmatic direct context, margins for entities that serve largely as conduits will see increasing pressure, improving yield for publishers and advertisers alike.
RTB does have a very promising future, but it doesn’t quite look like more of the same.
Follow Eric Berry (@ezberry), TripleLift (@triplelifthq) and AdExchanger (@adexchanger) on Twitter.
