Programmatic Beyond RTB: A Primer
Programmatic ad buying isn't just about real-time bidding. Columnist Matt Ackley takes a look at other, non-real-time-bidding methods that are gaining traction.
Over the past couple of years, audience marketing, particularly across social and display, has been revolutionized by the real-time bidding (RTB) auction, where ads are sold based on the audience data available to the advertiser at the moment the impression is served.
Programmatic ad buying can be categorized in two ways: Is the inventory reserved or unreserved? And is the pricing fixed or auction-based?
In the first category, reserved inventory is ad space that’s pre-sold and set aside for a specific advertiser. Good examples include a two-week homepage takeover, a magazine placement, or a Super Bowl commercial. Reserved inventory that’s sold programmatically is typically limited to “Automated Guaranteed” buys.
In contrast, unreserved inventory is ad space that hasn’t been pre-sold, but rather is sold through an open marketplace of ad networks and ad exchanges. For example, the retargeting ads you buy are considered unreserved inventory.
The second way to categorize programmatic ad buying is how it’s priced — whether the price is fixed, or whether it’s auction-based. Auction-based pricing is typically via real-time bidding at the time the impression is served.
The Four Flavors Of Programmatic Advertising
When advertisers think of programmatic, they tend to think of real-time bidding, where ads are bought by the impression based on a second-price auction format. RTB has grown hand-in-hand with retargeting and has represented the bulk of programmatic ad buying. In fact, RTB represented 92 percent of programmatic ad spending in 2014, according to eMarketer figures.
However, RTB is just one of the four major programmatic buying methods, and is actually ceding ground to other methods. Let’s take a look at each.
In the good ol’ days, all ad buying was fixed price, reserved inventory. Advertisers would agree to a specific budget in exchange for the right to run ads on a certain section of a website over a specified time period.
Contrary to popular belief, while RTB has been the most popular method of buying programmatically, RTB isn’t interchangeable with programmatic. That’s because fixed-price inventory can be bought programmatically through an API.
There are two main types of fixed-priced programmatic buying. (For consistency’s sake, I’ll mostly stick with the IAB’s naming conventions [PDF] throughout this post.)
1. Automated Guaranteed
What is it?
Automated Guaranteed refers to programmatic advertising where the inventory is reserved and the price is fixed. Essentially, it’s like old-school ad buying, except instead of people making deals over three-martini lunches, now robots make them without the drinks and the chitchat. The RFP and campaign trafficking process is automated, and the deals are negotiated directly through API calls.
Is Automated Guaranteed the same as Programmatic Direct?
Yes … for the most part. Sometimes advertisers will make a distinction between “Reserved Programmatic Direct” (a.k.a. Automated Guaranteed) and “Unreserved Programmatic Direct” (a.k.a. Unreserved Fixed Rate, described below), but as far as the IAB definition goes, “Programmatic Direct” is Automated Guaranteed.
To further confuse matters, there are about 600 other names advertisers use to describe this concept, but “Automated Guaranteed” and “Programmatic Direct” are the two terms I tend to hear most commonly.
What’s the big deal about Automated Guaranteed?
In 2014, only about 8 percent of programmatic display spending was on Automated Guaranteed, but the growth potential is huge; eMarketer projects that by 2016, 42 percent of all programmatic display spending will be through this channel.
Why the massive growth? Automated Guaranteed inventory represents the cream of the crop. Publishers are loath to turn their highest-demand, highest-quality inventory into a commodity by auctioning it off.
Whereas historically this inventory might have been available only through in-person deals and insertion orders, Automated Guaranteed offers the promise of a more efficient and scalable workflow.
2. Unreserved Fixed Rate
What is it?
Unreserved Fixed Rate, more commonly referred to as “Preferred Deals,” is unreserved inventory with fixed pricing. Preferred Deals enables advertisers to purchase inventory without fighting for it in the open market.
Unreserved inventory with fixed pricing? How does that work?
The way “Preferred Deals” work is publishers can make blocks of inventory with fixed, pre-negotiated pricing available to advertisers outside of the auction environment. Preferred Deals is kind of like if you were trying to sell your old television — you set a price for it, and then offer it up to a few of your friends, giving them the right of first refusal: “It’s all yours if you want it — otherwise, I’m selling it on eBay.”
Inventory that doesn’t get sold via Automated Guaranteed or through Preferred Deals will often then get sent off to the auction.
As you may have surmised, auction-based programmatic is inventory that’s available for advertisers to bid on in real-time. There are two types of auction-based buying, the difference is based on the exclusivity of the auction itself.
3. Invitation-Only Auction
What is it?
An Invitation-Only Auction, more frequently referred to as “Private Marketplace” (PMP), functions similarly to an open auction in pricing and is determined in real time based on what advertisers are willing to pay. The difference is Private Marketplace deals are more exclusive.
If an open RTB auction is the eBay of programmatic, you can consider Private Marketplace the Sotheby’s — you need to be invited (or have invited yourself) to the party in order to participate.
What other confusing names do people use for Private Marketplace deals?
Private Auction, Closed Auction, Private Access. If you can combine a word that signifies exclusivity with one that indicates that the pricing is fluid, then you can come up with your own programmatic dialect.
Why is Private Marketplace important?
Advertisers like Private Marketplace deals because they provide more control over where the ads run. Only want your ads to run on the Financial Times, Forbes and The Wall Street Journal? Then Private Marketplace might be the best way to exercise that control.
At the same time, advertisers don’t have to commit any dollars upfront as they do for Automated Guaranteed deals. Instead, they can continue to transact on each individual impression similar to an open auction.
Private Marketplace deals are quickly gaining popularity, and spending on PMPs is expected to triple between 2014 and 2016.
4. Real-Time Bidding (RTB)
What is it?
The eponymous term, Real-Time Bidding, refers to ad inventory that is unreserved and where the pricing is determined by, wait for it … a real-time bidding auction.
RTB represented the first beachhead of audience buying and the moment where display advertising became a little “search-ified.” When marketers refer to the growth of programmatic over the past few years, they’re typically referring to the growth of RTB.
Does RTB have any other confusing names?
If we’re debating semantics, it would probably be more accurate to call RTB an “Open Auction,” since Invitation-Only Auctions also sell inventory through real-time bidding. RTB has a number of other names as well including Open Exchange and Open Marketplace.
Regardless of what you call it, the key takeaway is that the ad inventory is open to anyone to purchase, and the pricing is determined at the moment the ad is served.
Why is it important to know?
While non-RTB programmatic buying methods are increasing in popularity, when advertisers talk about programmatic spending, they’re typically still referring to RTB on open auctions. In 2014, 88 percent of programmatic spending was through RTB. And in the world of performance display, retargeting is still a largely RTB-centric world.
Does One Programmatic Channel Perform Better Than Another?
Beyond the unique buying and targeting opportunities each programmatic channel offers, categorization is also important because it dictates the prioritization of delivery in programmatic ad inventory deals:
- Automated Guaranteed buys receive the highest priority.
- Any inventory that isn’t bought through Automated Guaranteed deals can then be made available to advertisers via Preferred Deals.
- Then, if no advertiser chooses to buy the inventory at the pre-negotiated price, that inventory will often make its way into the auction environment.
- The publisher may choose to make the ad inventory available within Private Marketplaces by limiting the potential bidders in the real-time auction.
- And finally, any inventory that hasn’t sold through the aforementioned channels can then be made available in the Open Auction to any interested advertiser.
Despite this systematic process, just because an ad has higher priority in the deal process doesn’t mean it’ll deliver better performance. Higher priority programmatic channels come with a higher price premium, naturally, and advertisers may trade off on reach and bottom-line performance by transacting on some of the more “premium” channels.
Unfortunately, regardless of how you buy the ad, the same trade-offs between cost, control, transparency and performance still apply.
There’s a lot to keep track of as programmatic continues to mature. We didn’t even touch on the different formats like mobile, video and native. But don’t let the confusing names slow you down. The future of audience marketing is bright and only getting brighter.