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RTB Is the Most Overhyped Technology Ever

It's Useful for Extending the Reach of Mediocre Content, but Not for Subtle, Thoughtful Buys

By Published on .

If you read the industry press or attend many industry events, you would be forgiven for thinking that the future of advertising is in real-time bidding. One typical seminar these days is entitled "Programmatic: The Death of the Manual Insertion Order" (the advertising purchase order). Even The New York Times is suggesting that real-time bidding is the future of advertising.

So we should all prepare for this, right? Wrong. Real-time bidding is so overhyped that even its vendors are starting to believe their own unsubstantiated claims, as have journalists. Despite the rhetoric, however, RTB is not a suitable technology for premium advertising, nor is it positioned to ever become so. Any large or mid-size premium web publisher would be out of his mind to replace his ad-sales force with programmatic.

Here's a case study. At the start of 2013, a premium publisher who was running a first-class entertainment web site decided to switch to RTB. The company had a direct sell-through rate in excess of 85% on its U.S. advertising, with clients paying an average cost per thousand (CPM) around $7. The site's remnant inventory collections were negligible, as they were sold "blind" through ad networks.

All of the U.S. display inventory was moved over to RTB, with one of the RTB industry leaders. The publisher set a price floor of $1.50, which seemed to make sense; he had been getting five times that on 85% of his inventory in direct sales. So the switch was thrown, and he was fully on programmatic. No more need for a premium sales force anymore, just sit back and let the money come in!

It did not. Less than 10% of his inventory was moved at even $1.50 CPM. This was carefully monitored for the first few weeks, and his RTB partner suggested that he lower the price floor significantly, first to a dollar, and then lower, and then lower. One problem is that the only information a media buyer has when placing ads in teal-time bidding is the domain name. He knows it's www.CoolWebsite.com, but has no idea on which page of the site his ad will appear. It could be at the top of the page or below the fold, in a photo gallery or pensive editorial. So when a publisher goes to RTB, all his inventory is flattened to the price of the worst possible position. If you walk into a Ford dealer to buy a car, but do not know whether you will get a Lincoln or a Pinto, you will only pay for a Pinto; it is common sense.

The publisher inquired whether his losses could be mitigated, such as by passing demographic information about its audience or other contextual information to the RTB system. The answer was no. Real Time Bidding is meant to be exactly that, real time, and a media buyer has to make instant decisions about what he is buying. It is not meant for thoughtful buys, predicated upon reviewing engagement, brand safety or other subtleties.

Within three months, it became clear that moving high-caliber inventory on a premium web site to programmatic was a disaster, and the publisher quickly moved back to a direct-sales operation. It was an expensive lesson.

Proper Uses
Still, RTB is appropriate in many situations. It is ideal for "reach publishers" -- those with mediocre content but large audiences from search optimization or traffic swaps. It could be ideal for larger publishers to use in countries where they do not have a sales force. For larger media companies, it could also be an effective way to monetize secondary web sites whose inventory cannot be sold with their major properties, because of demographic mismatches or other reasons.

Premium publishers should carefully consider whether or not to use RTB for remnant, or otherwise unsold, inventory. By definition, the domain name is exposed to the buyer, and this could be looked at as a back door onto the premium web site, which could seriously cannibalize any direct sales.

RTB should be evaluated by publishers and markers for exactly what it is: a better way to buy reach than blind network buys. For buyers who care about CPMs and not much else, this is for you. For publishers with lousy CPMs, this is also for you. But for a sophisticated marketer, who has to reach his audience in a thoughtful, brand-safe and contextually relevant way, RTB must be approached with caution. For publishers who have the option to sell direct, RTB should be avoided completely.

Joe Mohen has started multiple internet companies, including SpiralFrog and ParishPay.
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