Real-Time Bidding vs. Real-Time Optimization, and Why You Should Know the Difference

CS_IA_aCardella2Often introductions to programmatic advertising discuss the process of real-time bidding (RTB).  By the strict definition of RTB, these systems streamline insertion orders (IOs) and automate campaign execution by computerizing the negotiations and payment that comprise media-buys. Basic RTB systems require inputs for the bids, the media selection, and targeting. An operator typically enters these settings, but they may also be automatically set by a separate system that uses machine learning to identify the settings that perform best.

Many are under the impression that RTB and Real-time Optimization (RTO) are the same, however RTO systems provide the automated component that is crucial to refining targeting and bid amounts to achieve top performance.RTOis an important supplement to most real-time bidding systems.The process involves artificial intelligence and massive data processing that analyze consumer data, website context, and campaign performance to optimally configure the RTB system. The RTB system then responds to bid requests and completes transactions according to those settings.

Here are four ways that RTB and RTO are separate processes that complement one another:

1.    RTB is a singular instance of bid submission; RTO is the ongoing evaluation of data that constantly pours in from running campaigns.

RTB is the decision-point, and RTO is the before, after, and during that helps automated systems make smart decisions. RTO stores consumer data and factors in context about media space pre-bid, as well as consumer performance post-bid. It also considers campaign budget and delivery pacing to determine a bid amount.

2.    RTB decisions with one bidding system occur close to a million times per second; RTO updates RTB settings in increments.

RTO involves the recording, computing, and evaluating that helps a system to determine the value of an ad impression and submit a bid.  An RTO evaluation period depends on the fastest update that a system is capable of, as well as the auto-optimization timing set for each campaign. Campaigns require unique types of evaluation periods according to the optimization metric (CTR, landing page CTR, conversion rate, etc.) and the desired sensitivity to changes in behavior. Further, the more actions that a metric requires from a consumer, the longer the look-back window typically is.

While RTO timing varies according to the system and the campaign, RTB timing for all competing systems is standard. The time it takes for any system to submit a bid must fall in line with the industry benchmark for submitting a bid to an auction in time for that bid to count. With RTB auctions, every bid must occur in two-tenths of a second from the initial request until the winning ad is returned.

3.    Without RTO, RTB targeting would be manual and relatively static.

RTO allows for dynamic targeting that changes according to alterations in engagement and performance. It works in real-time to track even the smallest changes in campaign performance to constantly target top-performers.

Automated optimization means that advertisers do not, from the start of a campaign, set strict targeting parameters.  RTO allows brands to identify new and hard-to-find audiences. Systems with RTO can instantly determine, in real-time and based on performance thus far, who to target, where, when, and how much to pay to reach each person.

On the other hand, RTB without RTO must be analyzed and controlled manually.  Under manual control, RTB systems adjust the media buy much less frequently and those adjustments are less likely to be optimal.

4.    The best-known benefits of RTB-based programmatic media buying are fairly split between RTB and RTO.

RTB systems provide access to exchanges where inventory has been historically less expensive.  However, this advantage has begun to erode recently as more bidders are putting upward pressure on prices.  RTB systems also simplify and expedite the process of buying media from thousands of publishers.  RTB systems drive efficiency and provide access to advantageous markets.

RTO systems find the best sites and audiences to include in the buy.  Often this means discovering untried sites and new niche audiences. RTO also achieves cost efficiency by spending only on top performers. In addition to selecting the best sites and consumers, RTO makes adjustments quickly enough to reap benefits while the trend is going on.  RTO systems drive performance by finding the optimal mix of the best-performing and lowest-cost media placements for each small slice of time.

Together, RTB and RTO seamlessly automate the targeting of ads, selection of consumers, decision to purchase media, placement of an ad, and tracking of performance.

Advertisers looking to distinguish the differences between vendors and identify the best-performing partners should ask about a system’s RTO capabilities. The most significant variation from one programmatic platform to the next will be found in the optimization component of real-time audience targeting. Brands and agencies can benefit by asking potential partners for an in-depth explanation of a system’s specific RTO techniques and the duration of each evaluation period.

Aidan Cardella leads the direction and development of ChoiceStream’s Products including our proprietary personalized advertising algorithms and analytical capabilities. Aidan joined ChoiceStream with more than 15 years of experience in technology-based product development, applied research and technical leadership, most recently leading the business execution, enhancement, and success of AdLearn, the core optimization technology for the AOL/Advertising.com network. Aidan has a BA in Mathematics from Grinnell College and an MS in Statistics from Iowa State University.
  • http://bidable.com Bidable

    Thanks for making that distinction Aidan, and I totally agree advertisers should ask about optimization capabilities when evaluating a vendor. I would say that there are already a lot of confusing terms around, so using RTO as seperate from RTB can cause further confusion when most advertisers will naturally asume the two are ‘included’ within RTB…