Ready or not, real-time bidding is revolutionizing mobile advertising
There's no question about it: buying on real-time bidding (RTB), also known as programmatic bidding, is shaping up to represent the future of the mobile ad marketplace: Just look to Twitter's $350 million acquisition of mobile RTB powerhouse MoPub and Millennial Media's exchange investment with AppNexus, and Rocket Fuel's explosive IPO as proof. Years ago, the financial markets transitioned from trading via hand signals and slips of paper to automated buying and selling. Similarly, today the advertising market is inexorably becoming increasingly liquefied as RTB gains momentum in both web and mobile advertising.
Similar to what took place on Wall Street when trading became digital, automated trading changes the playing field in some significant ways. For one, digital bidding holds out the prospect of a market that is truly liquid, by which I mean transparent, frictionless and efficient. Inventory that once took days and weeks to move can be priced and sold within a matter of milliseconds. Increased standardization of trading processes, products exchanged, and settlement processes will result in further acceleration of this shift towards digital advertising liquidity.
As we find our bearings on this new path, there is likely to be a period of fear and uncertainty, particularly from developers monetizing through advertising who fear that the shift towards RTB could depress ad revenues. However, savvy folks will be looking at how to step up early and take advantage of the new opportunities that lie ahead. So, let's take a closer look at the mobile ad market and how developers who want to publish ads on their apps can best position themselves today and in the future.
Today's mobile advertising landscape
Today's mobile advertising industry is still surprisingly fragmented, with advertisers splitting their ad spend among RTB, proprietary systems offered by third-party players and individual ad partners using traditional analog contracts. However, despite this fragmentation, RTB already accounts for a substantial portion of ad market spend, and that trend is expected to continue in a big way. eMarketer projects that one in five US ad dollars this year will go to RTB, or $3.34 billion. They go on to predict that by 2017 RTB will account for $8.69 billion in ad spend, or 29 percent of the market. Given the titanic shift towards mobile advertising and away from other formats, there's no question that the shift towards RTB will be significant in mobile as well as on its more traditional home on the web.
What RTB brings to advertisers
For mobile advertisers, the benefits of moving towards RTB are clear. In the less transparent market of the past, the available supply of mobile ads remained severely limited, which meant advertisers had to pay dearly for ads. One-hundred years ago John Wanamaker famously stated “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” RTB changes this for mobile advertisers: individual ad-buys are now attributable to a return on the investment spend. This allows advertisers to more confidently direct their advertising budgets towards mobile media dollars.
Mobile publishers can harness RTB to their advantage
The position of publishers (in this article a publisher is a mobile developer using ads to monetize their inventory) in this emerging market may appear at first to be less beneficial. As noted previously, when publishers open their systems to RTB, the demand partner landscape changes— in an early market where not every buyer is RTB-enabled, this can mean there is a shortage of demand competing for publisher ad supply. If supply is exposed to rapid trading in a demand-controlled market, then prices fall as quickly as advertisers can react – and since RTB trades in real-time, that means prices can fall pretty fast. But this doesn't mean publishers should resist the move towards RTB. Those that understand the dynamics of the market can use it to their advantage.
Mobile Developers: Here's What You Need to Do
- Segment your ad inventory. One of the most important things publishers can do to counteract falling prices is segment ad inventory. For example, price your ad placements and impressions as granularly as possible. In today's market, not all advertisers compete in the same markets. A publisher who segments supply across different exchanges and amongst different demand partners can maximize demand competition. Effective segmentation enables publishers to artificially create fluidity in an otherwise fractured advertising market. Forcing the demand dollars to compete for finite supply will drive prices back up.
- Determine what types of traffic your partners actually want. Often a platform provider can offer higher rates for the right traffic. Your top-grossing ad partner may pay you a $1.00 CPM (cost-per-thousand-impressions) for a certain user, but, given the chance to compete, I could pay ten times that. Exposing your inventory to competition in an RTB market allows fair competition for this user.
- Remember that ad revenue matters more than CPMs. While CPMs are important, in the end, overall ad revenues are the leading indicator of monetization success. Only judging an advertiser or ad provider on CPMs can be a misnomer. Advertisers buy in two methods: 1) by maximizing CPMs—buying only the most valuable inventory to buoy the average CPM; or 2) by maximizing revenue –buying as much inventory as possible, which decreases average CPMs. Work with your ad provider when setting price floors to ensure you're getting the maximum revenue return for your traffic. $10 CPMs at 1% fill rates are going to make far less money overall than $1 CPMs at 99% fill rates.
The Future is Bidding and Bright
Ultimately, we believe the landscape of the mobile ad market will change radically, as the majority of ad dollars move towards RTB. The result will be a more liquid and efficient market which is balanced to benefit all participants, both on the demand side and on the supply side. The transition, however, will be rough for some publishers. The responsibility is theirs to take the right steps to benefit from this inevitable and important shift in the marketplace.
Adam Landis is Vice President of Business Development for LifeStreet Media, one of the world's largest programmatic buyers of mobile advertising and creator of the RevJet revenue maximization platform for mobile and web display advertising.