What is Real-time Bidding (RTB)? How does it work?

What is RTB, Illustration of the process

If you are new to the Programmatic advertising industry or are considering dipping your toe in the water, chances are you might get lost in all the terminology and processes. 

Programmatic is fast becoming the main choice for app developers to advertise their apps. In fact, the Interactive Advertising Bureau reports that programmatic media buys account for an estimated 85% of all digital ad spend. We bet that you don’t want to get left behind, so in this article we will give you a solid foundation from which to start your journey into programmatic advertising. 

What is Real-time Bidding?

To grasp what RTB exactly is, let’s start by defining what “programmatic advertising” means. Programmatic is an umbrella term that refers to the automated method of buying and selling mobile ad inventory with high efficiency, through targeting specific audiences and demographics. RTB on the other hand, is simply how advertising inventory is bought and sold on a per-impression auction basis. These transactions take milli-seconds to execute, so they are referred to as “real-time” bidding.

A common analogy used to describe RTB is the stock exchange, but for an ad campaign.

How does RTB Work?

There are three main players in the programmatic landscape: DSPs, SSPs, and Ad Exchanges. In this recent article we go into depth and give a detailed description of each of these players, but here is a quick synopsis:

  • Demand-Side Platforms (DSPs) are used by advertisers (app developers) to buy ad impressions from ad exchanges as cost-effectively as possible.
  • Supply-Side Platforms (SSPs) work on the publishers’ side to do the opposite - to maximize the yield for their ad space/inventory and monetize their advertising inventory – which, in this case, is the ad space within the apps.
  • An ad exchange is a neutral, autonomous platform that enables the entire buying and selling process via real-time auctions.

Now that you know the ecosystem players, let’s review step by step how RTB works. 

  • Step 1. When a user visits an app, a corresponding bid request is sent to an SSP that notifies it of an ad impression available for purchase. This bid request may contain user data such as demographics, location information, and more.
  • Step 2. The SSP then puts a bid request out to the exchange
  • Step 3. The ad exchange passes the bid requests along to its integrated DSPs
  • Step 4. The DSP evaluates the bid request and compares it to the campaign targeting parameters of its connected advertisers. The algorithms determine a bid on the ad impression for every advertiser with a matching campaign.
  • Step 5. The DSPs send back what is called a bid response to the ad exchange. The bid response contains all the information about each matching campaign: the advertiser, the ad unit, and their preferred price for that ad unit.
  • Step 6. The ad exchange runs the auction by comparing the bids sent by the DSP and other buyers against each other. The advertiser that wins the auction gets its ad served in the publisher’s app.

What are the types of auctions in real-time bidding?

There are two ways of auctioning in-app ad inventory: first price auction and second price auction. 

2nd Price Auction

If you have ever bought anything on eBay, you are probably familiar with the second-price auction, where the winner pays the second highest bid rather than their own (thus the second-price name). For years, the second-price auction model has been the gold standard for auctioning mobile ad inventory. This auction model often encouraged aggressive bidding, given the likelihood that the successful advertiser will pay a lower price. While buyers often benefited from this strategy, publishers were not able to maximize the value of their inventory and sell it for its true value to advertisers.

1st Price AuctionAs the industry evolved, more and more bidders have begun to support the first-price auction model, which allows for a more simplified approach to auctions, although it requires more sophisticated bid models. Here the highest bid wins and the advertiser pays exactly what they bid in the auction.

Ultimately, the main difference between first-price and second-price auctions is in the way the bids are finalized.

It’s never late to turn to programmatic to maximize the monetization of your app. At Aarki, we continue to work on materials to make it easier for you to tap into this market. If you haven’t visited our whitepapers page yet, we encourage you to do so to get acquainted with the basics of programmatic buying.  


Topics: Marketplace Insights