News & Insight

April 24th, 2017

Enriching RTB could enrich the open marketplace, why are we waiting?

We’re now operating in a world where two companies hold the lion’s share of ad revenue. According to Facebook, in 2016 the company’s advertising revenue for the Asia Pacific region alone was US$4.3 billion.

A pretty sizeable chunk for a single platform, considering the region’s digital ad spend excluding China, amounted to US$37.3 billion that same year.

While Google currently does not share a breakdown of ad revenue by region, an eMarketer estimate puts its global ad revenue for 2017 at US$72.69 billion. Globally the two companies account for 46.4% of total global digital advertising spend.

In a world where this digital advertising duopoly looms so large, what then, is left for Real Time Bidding (RTB)? The domains of ad exchanges that currently account for just a small slice of the digital spend pie?

The introduction of RTB has no doubt driven cost efficiencies, resulting in more effective digital advertising. But to date, it has fallen short of living up to its real promise – which is buying audiences not sites.

Much of it has to do with current disconnect in the way media and data is valued and bought within this system, and the pricing mechanisms at play.

At its core, RTB enables advertisers to apply sophisticated targeting and pay a more cost effective market rate for each impression bought via their demand-side platform (DSP) of choice.

However auction-based pricing currently does not apply to audience and contextual data segments, which are typically charged at a flat cost per thousand (CPM) fee, making it difficult for the buy and sell side algorithms to evaluate and bid the optimal market price.

With audience data rates averaging north of $1 and contextual data providers coming in a little lower, it skews the price of RTB advertising. In South East Asia where RTB media cost averages below $1, the data fee more than doubles the cost of ads bought via RTB.

This higher price can make the use of audience and contextual data for targeting harder to justify from an ROI perspective, especially for performance campaigns.

Given the potential to layer in contextual and audience data to enable more astute media buys, the industry needs to rethink the way an impression is valued. The system essentially creates an artificial floor that is not based on value.

Contrast this to Google, which bundles in some audience and contextual data, while Facebook Audiences is built into the process and pricing – all via an easy-to-use platform.

It’s a much lower barrier than the currently complex math that comes into play for programmatic traders the moment items such as audience and contextual data with tack-on prices are added to the mix.

So where do we go from here? There are new innovations and partnerships that are starting to address these issues. These new solutions focus on bid enrichment – combining media and data in a single request – so that it can be better valued in a second price auction.

With the audience and contextual data bundled with media, programmatic traders can more easily setup and optimise audience-targeted campaigns on the DSP.

This setup allows for additional layers of targeting and more importantly, removes the additional flat CPM charges in the old model. In short, it will better reflect the data’s true market value through the use of auction pricing mechanisms.

As data enriched bid requests become more widely adopted, audience and contextual data attributes can simply be declared in the bid requests enabling the DSP to parse and apply targeting in an open exchange auction.

This evolution in the mechanism to apply audience and contextual data to RTB benefits the entire ecosystem. It closes the feedback loop for data providers enabling them to optimise data pricing to maximise revenue, while simultaneously providing better value to advertisers with the most recent data at the optimal market price.

It also moves open exchanges closer to the realm of programmatic direct buys and private marketplaces that are currently being advocated by many as the better option for publishers and quality-concerned advertisers.

There is no doubt that RTB can still live up to its full potential, and deliver on the promise of optimally priced audience buying, conducted in a transparent fashion. While the benefits are clear, the main barrier to adoption is the investment required from data providers to build and implement this system.

A costly move perhaps, but a timely one as increasing distrust in walled gardens and closed ecosystems will see advertisers expanding their current digital buys beyond the usual suspects.

Given all the concerns, it stands to reason that a trusted open exchange that offers better visibility with comparable levels of audience and contextual targeting would be a more attractive proposition.

But for media buyers to be confident about buying in, the onus is on data providers to take a leaf out of Facebook and Google’s customer experience playbook and embrace the next stage of RTB’s evolution.

Digital ad spend has nowhere to go but up, especially in an emerging region like Asia. In Southeast Asia alone digital media spend is expected to grow in double-digits according to IAB Singapore’s latest ad spend report for the region.

But for this growth to benefit a wider group of players instead of only a couple, an old business lesson must be applied: Friction needs to be removed from the sales process.

Make it easy for your customers to trust and give you money.

Ryan Pestano is an IAB Singapore Board Member and the Asia Pacific general manager of IPONWEB.

View the original article on TheDrum.com