• by James Green , Op-Ed Contributor, May 23, 2013

As we all know, real-time bidding (RTB) is probably the fastest-growing segment of digital advertising. In fact, eMarketer predicts that 73% of digital display ads will be purchased through RTB this year.

RTB has one thing to thank for its explosive growth: site retargeting. Exchanges have allowed site retargeting access to a large percentage of the Internet, meaning that if someone visits your site you can target them again, because you will see them again on an exchange due to the massive amount of liquidity. Although site retargeting will continue to grow, will RTB continue to grow? And how will advertisers and publishers be affected?

Publishers

Publishers continue to be up in arms because RTB doesn't give them the same CPMs as a direct sale does. eMarketer also recently reported that publishers cited cost control as their biggest concern with programmatic buying. In order for RTB to continue to grow, advertisers need publishers to put even more of their inventory onto exchanges.

Advertisers

Although advertisers know how to buy their own audience, they would like more data about each possible ad impression bought through exchanges. The problem is that exchanges are not uniform in the data that they share, nor are they all created equal.

For media buyers, the leading concern is that they need more data to inform bids. Additionally, there is a general suspicion, backed up by some very compelling data, that massive amounts of inventory on exchanges are ads that aren’t ever seen. This can happen for a variety of reasons, ranging from the excusable (being above the fold/below the fold, for example) to the outrageous (traffic is either non-human, generated by humans who will never be customers, or intentionally hidden so that ad inventory can be maximized.)

The good news, though, is that there are changes afoot that should solve all of these problems.

The Magic Bullet: Pricing

1. Most buyers on RTB are "lower funnel" buyers, which means that they are using site retargeting, or other forms of targeting focused on getting existing customers to buy more or prospective customers who are on the verge of buying to convert. Advertisers are generally prepared to pay more to find a new customer than to convert an existing customer. So as the lower part of the sales funnel fills up and more "branding" campaigns come to RTB, pricing will move upwards.

2. The laws of supply and demand state that if demand stays flat or increases while supply decreases, prices will go up; this is exactly what's going to happen in RTB. There is a massive amount of questionable traffic on ad exchange, however, and as that suspicious traffic goes away and/or is ignored by more bidders, true publisher traffic will become scarcer. Therefore, bids will have to be higher to account for the decrease in supply. The only fly in that ointment is the massive amount of scale that Facebook dumped on the market with FBX. That will continue to depress pricing until it gets soaked up by ever-increasing demand.

3.  Advertisers are getting more and more sophisticated about attribution. At the moment, lower-funnel activity looks fantastic because so many campaigns are measured on last click, last view, or some other last-action model. This isn’t ideal because advertising that drives people to interact with a brand for the first time loses out to site retargeting campaigns that try to convert abandoned shopping carts. As everyone gets better at assigning value to each marketing touch point, upper-funnel (more expensive) campaigns will get more value, which will help publishers raise CPMs.

Ongoing Pain

In the meantime, advertisers and publishers can expect some pain. RTB buyers who are less sophisticated are going to continue to get hurt buying non-human traffic, publishers are going to continue to be forced to decide between not selling inventory or selling it at low CPMs, and advertisers will continue not to know which half of their advertising budget isn't working. However, if all of these players keep moving forward as quickly as we have been, this pain is going to be comparable to the pain of ripping off a bandage. Best to do it as fast as possible.