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Real-Time Bidding Explained: How RTB is Like the Stock Market

How Real-Time Bidding is Like the Stock Market

Understanding the online display marketplace can be difficult. It consists of dozens of layers of complexity as well as dozens more players who have developed proficiencies in these numerous layers.  When asked to explain the display world and its relationship with its users, I’ve found the best success by comparing it with the stock market.

Supply and Demand

Imagine the entire inventory of available ad space as the stock market. Like companies that IPO and create a supply of stock, websites become publishers, creating a supply of available ad inventory. Depending on the desirability of this inventory (stock), demand emerges. As demand for this inventory rises, the price to place your ad rises, just as a stock price rises when market speculation values a company higher than it previously was.

Too Big to Fail

Just as the stock market has grown and evolved, so has the online display market. In the past, a media buyer could simply call a website and ask to place an ad on the sidebar for a day. Today, demand is so high and the market so complex, that this was simply too inefficient for publishers to sustain. Ad networks and ad exchanges have made it easier for publishers and advertisers to interact by providing a single point of contact for both parties. Ad networks amalgamate collections of publishers and advertisers can purchase inventory through the ad network or exchange instead of going directly to publishers. Exchanges can be compared with the many stock markets of the world that emerged as global demand for stock increased. Just as ad inventory can only be purchased on www.huffingtonpost.com through AOL’s ad network, Bank of America stock can only be purchased through the New York Stock Exchange.

How to Play

A digital media sales company such as ReTargeter is very similar (in no way other than function) to a broker such as Goldman Sachs. When an investor goes to a broker they bring specific expectations such as buy/sell floors and ceilings, industries they want to buy within, and the volume they want to buy. The broker will simply plug these expectations into an algorithm and let it run with the assumption that these expectations will be met through the natural ebb and flow of the market.  This is exactly what happens when a marketer comes to a digital media sales company. They have expectations for their ad placement based on inventory pricing floors and ceilings, specific sites they want to appear on, demographic audiences they want to advertise to, and volume of ads they want to show. The company will then plug these parameters into an ad exchange and run the campaign.

Automation and Optimization

Similar to the growth of demand in the stock market, the growth of demand in the display market has reached a near bursting point, and has necessitated the birth of real-time bidding (RTB). RTB came about because the amount of inventory simply got too large to manage manually. Because demand is constantly fluctuating in the display market, the price it takes to place your ad on a site is also in constant flux. RTB alleviates the pressure put on marketers trying to hit price points by placing your ads within milliseconds after someone you want to reach visits a site you want to advertise on at the price you want to advertise for. RTB, like automated stock trading programs, removes a lot of the guesswork involved in placing ads because you can set and forget it.

Let’s Not Get Ahead of Ourselves

As elegant as this analogy may be, the similarities between the two markets end here. The difference between the finance and advertising is that you can lose in finance. Sure, you can spend a ton of money on an advertising campaign that may not live up to your expectations, but certain intangibles exist that simply do not in the financial industry. When you lose in the stock market, that’s all she wrote. If you don’t see a positive ROI in your advertising campaign, at least you’ve gained valuable data about your business and industry that you were previously not privy to. You also helped to increase the value of your brand, as you have been showing digital billboards to thousands of people over the course of your campaign. Additionally, and similar to portfolio diversification, there are dozens of methods you can employ in the digital space that can bolster your display campaign. From email marketing to SEO to retargeting, the possibilities are numerous and only limited by a marketer’s imagination.

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