Programmatic Buying And Real-Time Bidding: What Are They, And Can They Save Mobile Advertising?

Programmatic Buying And Real-Time Bidding: What Are They, And Can They Save Mobile Advertising?:from Silicon Alley Insider by Marcelo Ballvé
Programmatic buying is to digital advertising what high-frequency trading is to Wall Street. It involves computerized, algorithm-driven trading that allows for quick buying of ad impressions according to pre-set parameters.
On the desktop, programmatic or automated buying of display ads has already made huge inroads. Programmatic buying has also begun to win over brands. Its advocates say that it has led to a more transparent and efficient digital ad market.
But it is in mobile where programmatic buying may make the most difference, for two main reasons.

• The CPM problem: The glut of ad inventory as global audiences rush into mobile has dragged on mobile display ad CPMs (CPMs refers to the cost per thousand impressions). That means publishers can't monetize their mobile audiences effectively via ads. Advocates of programmatic — or automated buying and selling — say it can deliver the scale and efficiency needed to effectively match buyers and sellers and boost CPMs. 

• Leveraging location data via real-time bidding: Real-time bidding or RTB is a style of programmatic buying in which digital advertising opportunities are auctioned off in real-time. The auctions take place in milliseconds as advertisers bid on the right to show you an ad immediately after you open an app or click to a new web page. On the desktop it's a powerful technique to deliver the right ad to the right consumer at the right time and place — Facebook was the most recent large Internet player to embrace it. On mobile, it could be more powerful since consumers take their devices everywhere — to the mall, the car dealership, Starbucks, etc. "You have a source of media that's with someone constantly," says Jamie Singer, director of client services at Everyscreen Media, a platform for mobile RTB. "You're working in real-time, and getting information based on location."

(For a review of mobile RTB, and the role of mobile ad exchanges, networks, and demand-side platforms or DSPs, we recommend reading our mobile advertising primer first.)

In practice, however, the companies behind programmatic buying — and RTB in particular — still have their work cut out for them.

That's because other players in the mobile ad ecosystem aren't so sure the new technologies have their interests at heart, or that they're all they are cracked up to be. 

• Many publishers complain programmatic buying helps to ensure a good deal for ad buyers, without doing enough to guarantee quality control or protect CPMs. 

• Ad agencies and the traditional ad networks worry they'll be disintermediated by the automated marketplaces. They fear robotic trading will commoditize ad creation and trading. Will that mean the death of creative in mobile ads? 

• Brands and marketers, hyper-protective of their image, aren't always sure programmatic approaches will get them premium placements and quality inventory. There's still an impression RTB platforms are simply buckets for remnant inventory. 

In the rest of this report we'll examine the growth of programmatic buying and mobile RTB and look more closely at the concerns and hopes of both advocates and detractors.
Ultimately, we're bullish on these technologies, and believe that once they are perfected they will come to dominate the digital display ad market, on both mobile and the desktop, as they have the paid search market.
A note on terminology: RTB is technically a subset of programmatic buying (i.e., not all algorithm-driven, automated buying takes place in time-sensitive auctions). But the two are often conflated, and we're placing special emphasis on RTB in this report because of its promise for location-enabled mobile ads.
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More Successful Real-Time Auctions
By all accounts, RTB grew tremendously in 2012 across the mobile advertising ecosystem.

• Adfonic, which launched a mobile demand-side platform with RTB in October 2012, says it saw a quarterly increase of 22 billion RTB ad requests in the third quarter of last year — a full three-quarters of its growth — thanks to Android and iOS RTB inventory. 
• Nexage, a mobile ad exchange, reported that RTB more than doubled its share of revenue on the platform between May and October of last year. RTB's revenue share grew 37 percent every month.  
• MoPub, a mobile ad exchange, reported that the number of winning RTB auctions increased 162 percent over the third quarter of 2012. 

It's not just that more real-time auctions are happening. There are also more bids being placed on each RTB-mediated ad request, a metric sometimes referred to as "bid depth."

• Nexage, whose mobile RTB exchange is 18 months old, saw the number of bids per auction grow 96 percent between the second and third quarter of last year. 
• MoPub reported bid depth of 1.6 bids per auction in June 2012, up from 0.4 bids per auction in January. 

Bid depth may be seen as a slippery metric, since some auctions have no bidder. That leads to a low overall number for average bids per RTB auction. Anecdotally, digital ad professionals say bid volume is still thin, and there are often just three bids in a successful auction. 

In other words, bid depth is easily improved upon, and impressive growth rates shouldn't be made too much of. 

But there are also more RTB auctions being settled (i.e. more successful auctions), translating to higher "win rates." That is a more solid indicator of a healthy market, since more auctions have closed above the price floor that's often set by the publisher to protect CPMs.

On MoPub, the win-rate saw some volatility but did make gains in early to mid-2012, increasing from 18 percent to 37 percent. (See chart, above right.)

And on high-volume platforms like Adfonic, which process billions of ad requests, RTB is taking an increasingly large slice of the volume. RTB now accounts for 36 percent of ad requests from publishers via Adfonic. (See chart, below.)

Programmatic Utopia? 
There are obstacles.

• RTB doesn't always support the same variety of ad formats as other mobile ad buying methods. Rich media and mobile video are often out of the picture. 
• Detractors of RTB also say the technology isn't quite where it needs to be to deliver on its promise, both from ad buyers' and publishers' perspective. 
• The level and quality of liquidity is still less than ideal. Low proportion of high-quality inventory on the one hand, and price volatility and thin bid volume on the other. 

Tracking technology is perhaps the biggest hindrance. iOS, for example, places severe limitations on cookies and tracking. Moreover, the crucial ability to track unique users across devices — from PC to tablet to smartphone, and back again — is still in its infancy.
As a result, programmatic mobile ad firms are in a race. Multiple companies claim to have the most effective capabilities to enrich ad inventory with consumer data, in real-time or otherwise.
The competing claims add to the overall confusion regarding automated marketplaces for mobile ads.
In short, the mobile advertising ecosystem has a long way to go — longer than the desktop — before it reaches a wished-for utopia in which a full, fail-proof menu of user or device-linked data is available to advertisers on RTB or programmatic platforms.
Plus, for now, RTB tools seem to favor the buy-side — in its hunt for the right ad impressions at the lowest possible price — rather than the sell-side (the publishers), according to Eric Franchi, head of industry and media relations at Undertone, a digital ad agency that works on multi-screen campaigns for brands.
"RTB at this point is really helping the buyers more than the sellers," he says.
Franchi believes that RTB can help boost mobile CPMs down the road, once more advertisers invest in it, but right now he thinks a lot of the volume in RTB is by direct-response type advertisers such as developers fishing for app downloads.
"Broadly I'm sure it can help," he says. "If you see more and more advertisers invest in RTB and programmatic, and inventory is [more highly valued as a result], I'm sure at some point you will see lifts."
For their part, ad exchanges say RTB has in fact increased eCPMs (estimated cost per thousand impressions) and CTRs (click-through rates) by double or triple-digits. Adfonic says publishers in several categories have had phenomenal success in boosting these metrics via RTB-enabled inventory. (See chart above.)
But again, given low CPM and CTR numbers — which more often than not require two decimal points to capture — growth rates are not so meaningful.
Other mobile ad executives simply see RTB as a niche approach.
"Mobile RTB is not for everyone. It's a mistake to think otherwise," Trevor Healy, CEO of Amobee, told AdExchanger in November. "It’s generally suited to companies [that] have a time-based offering or a time-based product."
For example, Healy said, it could be used to sell Salomon skis after the first snowfall in California's Sierra Nevada, or to launch a campaign for an allergy medication once pollen counts skyrocket in certain U.S. regions.
There's a time and a place for RTB, but it's not for all brands — nor for all seasons.
The Holy Grail: Controls And Efficiencies
Believers in RTB and programmatic for mobile say they are making giant strides in perfecting their technologies, so they'll have the ability to leverage consumer data on mobile and track users as they do on PCs (while still being sensitive to privacy concerns). That will include location, contextual, and demographic data layered on top of real-time ad requests.
The variety and sophistication of ad formats is also improving. More rich media and video ads are migrating to RTB, says Alex Rahaman, CEO of demand-side platform or DSP, StrikeAd.
Singer, at Everyscreen Media, agrees. "You don't see as much rich media or video yet. I think that's where mobile RTB is going in 2013."
Once you can buy mobile video and rich media programmatically, she adds, "those CPMs will definitely go up."
StrikeAd and other RTB platforms say publishers already achieve higher CPMs with RTB than they do with traditional ad networks.
As a result, RTB is seeing wider adoption across the mobile ad ecosystem, and positive momentum on both sides of the equation.

• Sell-side: More premium inventory, and larger publishers requesting ads.
• Buy-side: More demand for RTB from advertisers and agencies.

Another innovation: "private marketplaces," where publishers can place premium inventory and control who can make programmatic buys.
RTB is only a part, if an important part, of a shift to programmatic buying in the mobile ad market, says Josh Wexler, senior vice president of market development at the Rubicon Project, a real-time trading platform that in July launched a mobile product with programmatic and real-time capabilities.
"I look at programmatic as having a huge role in helping the market scale faster," says Wexler. "If it's going to scale, it needs to use automation. If automation can provide all the controls of direct sales, plus all the efficiencies of programmatic ... that’s the combination that I believe to be the Holy Grail."
He also says there will be a benefit in the long tail of the mobile display ad market. As was the case on the desktop, the top half-dozen players in mobile display concentrate the lion’s share of the revenue.
That’s because it’s too complex to purchase impressions at scale beyond the giant mobile ad empires: Google, Apple (iAd), Millennial, Facebook, Twitter, Pandora, and others.
That’s where programmatic comes in.
 “We can make that process easy and simple,” says Wexler. “Our publishers are now in front of the ad budgets and dollars they were once shut out of.”
If programmatic takes off, it may be that even developers with niche apps will finally be able to access a sliver of the digital ad market.
Rahaman, of StrikeAd, definitely sees more brand money flowing into RTB. Consumer packaged goods, finance, and health are among the categories where brand interest has ticked up, he says.
THE BOTTOM LINE

• If the technological kinks are worked out, there's no reason why RTB can't account for 30 percent of mobile display ad spend worldwide by 2015, as forecasts say it will do in the digital display market overall. If that happens, mobile RTB would generate billions in revenue in the U.S. alone. 
• Publishers need to invest more in mobile RTB, and educate themselves further about its pitfalls and benefits. Ad services providers should help level the playing field by building more solutions geared around the sell-side.
• Programmatic buying in general offers a compelling route out of mobile advertising's monetization conundrum, once available data is leveraged appropriately to boost CPMs. 

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Click here to download the PDF version of this report→

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