The Business Upside of RTB: “Trust Us, There Is One…”

The Global AddressThe Global Address” is a column written by members of the digital media community with an international perspective on the digital space.

John Childs-Eddy is VP of Business Development at Australian direct response ad network, Funbox.

As I sat at my desk the other day, I remarked to our lead analyst that after reading what feels like hundreds of articles on RTB, I still didn’t know from a business point of view what it really did, or how it would help us make more money.

Chew (our lead analyst) whose opinion I greatly respect, and who was recently invited to (and gave) a talk to TED on chaos theory, went on to give me a long and detailed explanation of how RTB causes a market to function more efficiently.

“Yes, I can see how that is true”, I answered.

“But, ultimately what I see is a technology being pushed at us, which does not bring either more supply, or more demand. In fact, all it does is cause prices to become more efficient, which creates a more effectively priced market place… but unless the benefits of that outweigh the costs of applying the new technology, then from a P&L viewpoint of our business and our clients, I do not see why we would be interested in it. After all, it’s not increasing the amount of money in exchanges, or our ability to get more of the existing money.”

When I challenged him to show me how RTB would increase the total amount of money in the exchange market as it currently is, or demonstrate how it could bring our business more of the current money in the market – he couldn’t.

In fact, what we both eventually agreed on was that the only way RTB could bring more money into advertising exchange environments is as a marketing device to lure more participants into trading in the exchanges, and therefore increase liquidity. But is pricing efficiency what the major agencies and publishers who do not trade in exchanges are really worried about? Because I’ve never heard them say anything like that; in fact, I don’t think they would even be able to begin to fathom what all that means in the first place.

Andreas Vagelatos (a leading ad exchange thinker, and a great friend of mine) once remarked, “Everyone is so busy building exchange 3.0 that they haven’t noticed exchange 1.0 is five years away from achieving real liquidity. [sic] The opportunity right now isn’t building more efficient trading technology, it’s in convincing large Tier 1 advertisers and publishers to use ANY exchange in the first place.”

And I agree with him. From a business POV, the decision to use RTB is an easy one: does the benefit of applying this technology outweigh the cost? Considering the pricing I have seen on RTB, it’s not a cheap technology to implement… and as once pointed out by a wise man “the leading edge is often the bleeding edge”.

Anyone who has ever read “Positioning: The Battle for Your Mind” will remember that the most important law of positioning is that the first companies into a market become leaders, and often stay market leaders, irrespective of whether or not they produce the best product. Just look at Microsoft.

Unfortunately, being first often matters more than having “the best stuff” (whatever that means anyway). And in any event who is to say that clients are not better served through more transparent buying relationships? Or more risk distribution in their media acquisition deal? Why is RTB a “must have” offering, over other things?

The cynical part of me see’s RTB as a pure hype technology play – convince the network masses now that RTB is important – no one really knows what it does, or how it makes anyone more money… but hey! It’s real time! It’s efficient! It bids on an impression-by-impression basis! No more costly bidding on more than one impression at a time! And it’s only twice as expensive as what you are using now! Get one before they run out!

All I can say is that the efficiency must be incredible. We must currently pay 300% more for inventory than we currently should. Boy, our whole business is broken and I didn’t even realize it!

You know, when Enron successfully deregulated the Californian electricity grid, the “real market” cost of emergency megawatt hours went from $1, to $750. And Enron made over $200 million profit in three months. Most of California experienced rolling blackouts and total chaos, but Enron, the promoter and evangelist of “free, fair, and open markets” made off like a banshee.

Now I’m not implying that anything like that is happening here; but I am saying that when the only people tooting the horn of RTB are the people selling the technology… it makes me question whether there is any kind of real “bankable” value being created in the first place.

Maybe instead of “real time bidding”, its time we go to VTB: “variable time bidding”. Or even “virtual time bidding”. There’s so many ways time can be sliced and diced, it’s just all too confusing for me. What I do know is that bringing in deals makes money. So while people attempt to figure out RTB, I might go in search of another one of those.

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1 Comment

  1. Interesting article, John.

    RTB is still a relatively new concept and agencies/brands are really starting to look into the space. As they begin to see the buying efficiencies I think more money will eventually pour into the exchanges. Many agencies are even creating their own exchanges or bringing the technologies in house . . .

    The one point I disagree with (which was a very small point in your article) is that the networks are paying 300% more to the publishers that they should be. Networks bring a lot of value to publishers because they are monetizing remnant inventory, but so many are bringing terrible rates and low ad quality. In my opinion, some of them completely devaluing the publisher’s brand.

    There is no denying that the network space is very crowded right now and there is going to be a lot of changes happening in the next five years. It is going to be very exciting to see how everything pans out.

    The announcement by Google that they are now offering retargeting on AdWords is beneficial to advertisers and publishers. That is only going to push the rates up for their publishers and continue to push mid-tier networks out of the mix . . .