Real-Time Bidding Advertising: Challenges and Opportunities for Advertising Curriculum, Research, and Practice

Real-Time Bidding Advertising: Challenges and Opportunities for Advertising Curriculum, Research, and Practice

Kenneth C. C. Yang (The University of Texas at El Paso, USA) and Yowei Kang (Kainan University, Taiwan)
DOI: 10.4018/978-1-4666-9787-4.ch091
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Introduction

The Emergence of Real-Time Bidding (RTB) Advertising

Sabastian (2015) reported that ad spends in digital media show the largest growth between 2014 (17.4%) and 2015 (15.7%) and are expected to grow at 13.8% (refer to Table 1). Digital media has increasingly comparable to traditional media such as television and newspaper advertising in terms of global ad share (Sabastian, 2015). In terms of the share of advertising budgets, ad spends in digital media account for 21.9% in 2014, 23.9% in 2015, and are expected to grow to 25.9% in 2016 (refer to Table 2) (Sabastian, 2015). This trend is consistent with the Nielsen Company's quarterly Global AdView Pulse that reports double-digit growth of global ad spends in digital media (Maddox, 2013). Another marketing research firm, eMarketer.com (2014, July 9), also predicts that ad spends on digital media will increase 16.7% (about $140.15 billion) in 2015. Spending on smartphones and tablets is expected to be a key factor for the exponential growth (eMarketer.com, 2014). Mobile and video ad spends are the dominant factors contributing to the digital media growth (Sabastian, 2015). According to the popular and most cited Display LUMAscapes (Chatwin, 2013; LUMA Partners, 2014), the emerging digital media sectors include Commerce, Gaming, Display, Marketing Technology, Mobile, Search, Social, and Video. New entities have appeared to address the needs of the digital advertising industry. These new players include agencies, agency trading desks, DSPs, exchanges, ad networks, data-sharing, and social tools (LUMA Partners, 2014). Particularly, the digital advertising industry has gradually seen the important roles played by ad exchange operators, digital advertisers, and web site publishers; all of whom have been developing sophisticated methods, systems, and tools to enable, manage, optimize, and track the effectiveness of online advertising campaigns (Chatwin, 2013).

Table 1.
Global growth rate (%) of ad spend in various media
Global Year on Year % Growth at Current Prices
201420152016
Television4.4 (4.8)3.6 (4.3)3.9
Newspapers-5.9 (-2.5)-3.8 (-2.3)-2.4
Magazines-3.5 (-1.6)-1.7 (-1.3)-1.7
Radio4.4 (3.7)2.3 (3.0)4.9
Cinema2.5 (2.9)3.4 (4.3)1.9
Outdoor5.0 (3.3)4.8 (4.1)5.2
Digital17.4 (16.1)15.7 (15.5)13.8

Figures in Brackets Show Previous Forecasts from September 2014.

Table 2.
Global share (%) of ad spend in various media
Global % Share of Advertising Spend
201420152016
Television42.7 (43.2)42.4 (42.9)41.7
Newspapers13.9 (14.5)12.8 (13.4)11.8
Magazines7.3 (7.5)6.9 (7.0)6.4
Radio6.8 (6.7)6.6 (6.5)6.6
Cinema0.5 (0.6)0.5 (0.6)0.5
Outdoor7.1 (7.0)7.1 (7.0)7.1
Digital21.7 (20.5)23.9 (22.6)25.9

Figures in Brackets Show Previous Forecasts from September 2014.

Despite the growing presence of digital advertising, click-through rate (CTR) has been low (Birkner, 2014) for many online display ads. According to HubSpot Inc., a marketing software provider in Massachusetts, the average click-through rate for banner ads is only about 0.1% (Birkner, 2014). The desire to pursue better advertising effectiveness prompts many advertisers to other cost-effective solutions such as data-driven per impression base real-time bidding advertising (Birkner, 2014). Online display ads using a real-time bidding mechanism (henceforth, RTB advertising in this book chapter) has outgrown other digital ad spends in recent years (Maddox, 2013). RTB advertising, a subset of popular machine-facilitated programmatic ad buying practices, has garnered massive support from many ad exchanges and sell-side platforms (Birkner, 2014; Google, 2011; Marshall, 2014). Unlike other programmatic ad buying through utilizing secured advertising impressions in selected publisher websites, RTB advertising is characterized by the purchase of ads in real-time and through an auctioning mechanism (Marshall, 2014).

Key Terms in this Chapter

Data Mining: The term is also known as data or knowledge discovery. It describes an interdisciplinary sub-field of computer science to describe the computational process of pattern discovery in large datasets through the analysis of data to generate knowledge and intelligence for business decisions.

Ad Exchanges: A technology platform that functions as an ad impression marketplace to facilitate the purchase of online digital advertising inventory on the basis of highest bid placed on the ad space. Some examples of Ad Exchange operators are AdX , Yahoo Ad Exchanges , and Google’s DoubleClick Ad Exchange .

Display Advertising: A type of digital advertising associated with and displayed on a website. Its format ranges from audio, flash, images, text, and video.

Return on Investment (ROI): An advertising effectiveness/performance metric that is used to assess an advertising campaign budget to examine the benefit or loss of money spent. ROI can be calculated by dividing the return of an ad investment by the cost of the investment.

Mobile advertising: An emerging form of new media advertising platforms that are delivered via consumers’ mobile devices such as mobile phones, smartphones, tablets, etc. The term is used as a sub-set of mobile marketing practices.

Cost per Action (CPA): Also known as Pay Per Action (PPA) or Cost Per Conversion. This effectiveness metric is used in an online digital advertising pricing model to allow advertisers to assess the cost of generating each specific action when users click on an ad or a link that leads to a registration, purchase, request, or browsing.

Click through Rate (CTR): Click through represents when users click on an ad or a link. CTR is used as a metric to measure the success and effectiveness of an online digital advertising campaign. The unit measures the number of users who clicked a specific link. CRT is based on the following formula: clicks ÷ impressions = CTR.

Agency Trading Desk: Also known as Trading Desk. It is a service-based and centralized organization that offers advertising agency clients bid-based media and audience-buying technologies and services.

Electronic Commerce (E-Commerce): Often abbreviated as E-Commerce or eCommerce. The term refers to any types of business transactions of products and services over computer networks. Depending on the participants of E-commerce, there are B2B (business to business), B2C (business to consumer), and C2C (consumer to consumer) E-commerce.

Cost per Click (CPC): A campaign effectiveness metric to measure the cost of generating each click in an online digital advertising campaign.

Real-Time Bidding Advertising (or RTB Advertising): This practice refers to the bidding process commonly used in the online digital display advertising to purchase ad inventory on the basis of per-impression basis. RTB advertising operates through an auctioning mechanism that involves ad exchanges, supply-side platforms, and demand-side platforms in the process. The bidding of RTB advertising is a programmed process through which online digital advertising practitioners evaluate each ad impression and submit the highest price to secure an ad space. In the real-time bidding process, advertisers will set parameters to determine target audience profiles, behaviors, and ad impression price for their campaigns.

Programmatic Advertising Buying: A digital advertising practice that relies on computer software to purchase advertising impressions. Compared with traditional media buying processes that involve human negotiations and manual ad insertion order, programmatic advertising buying is a practice that involves machines in the negotiation process to increase ad efficiency.

Digital Advertising: Used interchangeable with Internet advertising. The term covers a wide range of online advertising formats, ranging from email, social media applications, search engine advertising, mobile advertising, etc.

Advertising Research: A sub-set of marketing research activities that are used to understand the process of how advertising works and to improve advertising effectiveness through pre-testing, campaign pre-testing, and post-testing procedures.

Predictive Analytics: A technique used in many business areas to enable organizations and companies to make more informed business discussions by making inference from analyzing patterns and relationships in consumer behavior data. A term refers to the procedure and technique to enable researchers or businesses to extra information from existing datasets to identify consumer behavioral patterns and insights to predict future trends and outcomes.

Demand-Side Platform (DSP): A technology platform in RTB advertising to enable advertisers to use the cross-platform advertising to reach their targeted audiences through real-time budget optimization and data integration. DSP allows advertising agencies to take part in multiple auctions through different ad exchanges at the same time.

Big Data: A term that describes a large dataset that grows in size over time. It refers to the size of dataset that exceeds the capturing, storage, management, and analysis of traditional databases. The term refers to the dataset that has large, more varied, and complex structure, accompanies by difficulties of data storage, analysis, and visualization. Big Data are characterized with their high-volume, -velocity and –variety information assets.

Sell-Side Platform (SSP): SSP refers to tools and technologies that enable web site publishers to acquire the best prices for their ad inventory through RTB by allowing the same ad impression to be sold at multiple ad exchanges. Some examples of SSPs are Google’s Admeld OpenXLift , and PubMatic .

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