The revolution will be targeted: RTB and the future of programmatic advertising

1. Summary

Over the past five years, a radical new paradigm called real-time bidding (RTB) has begun to transform the online marketing landscape. Much as high-frequency trading has brought the power of big data into financial markets, replacing individual broker transactions with algorithmic processes tailored to make the most of every market fluctuation, RTB replaces the traditional relationship between online advertisers and publishers with an algorithmic system tailored to find the sweet spot between supply and demand, allowing both parties to optimize their assets and increase efficiency.

This change has been largely invisible to consumers, yet relies heavily on data about them. Within a fraction of a second of loading a web page, the consumer is identified, categorized, matched to several databases, evaluated and bid on by dozens or more of competing bidders, and served an ad by the winner. The RTB market is already worth billions of dollars per year and is expected to grow sharply for the foreseeable future.

This report, which draws on interviews with 10 senior digital marketing executives, will assess the role of RTB in today’s marketplace and anticipate its likely development in the coming years. Key findings include:

• Bidding isn’t the only thing done in real time. Data analytics tools enable marketers to do real-time targeting and optimization of campaigns and buy target audiences separate from the media they’re found on. That analysis and separation makes targeting more efficient overall.
• The RTB ecology is complex and cluttered, with multiple, often-overlapping categories of service provider vying for their share of a relatively narrow margin.
• Today, RTB is primarily the domain of direct-response advertisers. While the potential for programmatic brand-buying is significant, the ecology still is evolving to serve this market adequately. Suppliers likely will solve contextual transparency issues before they address the real-time impact on branding metrics.
• The RTB marketplace will consolidate significantly in the coming years, with players such as Google and Facebook the likely providers of end-to-end programmatic marketing services, while companies like AppNexus and PubMatic specialize on media buyers or publishers.
• Traditional agencies and premium publishers will face the steepest challenges from RTB as traditional buyer/seller relations can be supplanted by automated bids and as brand advertisers become more comfortable and adept at reaching their target audiences across a broader array of properties.
• RTB faces some serious challenges to market maturity, such as a growing incidence of fraud and a rocky outlook for the future of third-party cookies. Yet solutions to these challenges are already underway, and the market will adapt and thrive.
• Ultimately, the long-term prospects for RTB growth are significant; the two major inflection points will be mass adoption by brand advertisers—particularly for video inventory–and the shift of offline direct-marketing dollars to online display and mobile platforms.