What is RTB? How the RTB process works in advertising

Read time: 9 minutes

March 25, 2021

In the context of ad tech (advertising technology) and digital marketing, RTB stands for real-time bidding.

Introduced in 2009, RTB is a mainstream method of buying and selling digital advertising.

RTB spend is forecasted to surge by 32.9% each year until reaching $27.2 billion in 2024.

So, what’s all the hype about?

This guide has the lowdown on all things RTB covered for you.

What is RTB?

Real-time bidding (RTB) is a method of buying and selling advertising inventory on an impression-by-impression basis using instantaneous (“real-time”) programmatic auctions.

In plain English, RTB is the process that allows publishers and advertisers to buy and sell digital advertising space while automatically managing the price and placement of ads.

This surface-level explanation is enough for many marketing and advertising personnel.

For savvy publishers and advertisers however, there are practical ad revenue optimisations that can be achieved through an advanced understanding how the RTB process works.

How does RTB work?

RTB allows publishers to auction their ad inventory on an impression-by-impression basis.

Here’s a basic rundown of how the RTB process works:

A user visits a publisher’s content (often hosted on the publisher’s own website)
An RTB auction is initiated as the webpage begins loading
Advertisers place bids for the available ad impression (also known as ad “inventory”)
The highest bid wins the ad impression
The ad of the advertiser who won is displayed to the visiting user

Despite the elaborate series of actions, the entire process of an RTB auction takes place in just milliseconds, typically concluding before the webpage is even finished loading.

To conduct the RTB process, one of two different auction types are used:

First-Price Auction

A first-price (or “1st price”) auction is a model in which the party that places the winning bid is required to pay the full price of the amount they bid for an asset.

This may sound like a “traditional” or a “standard” process outside of digital advertising.

However, until recently, first-price auctions weren’t used very often in the RTB process.

This changed with the introduction of a concept known as header bidding – a recent addition to RTB which has popularized first-price auctions and made them a standard practice.

Second-Price Auction

A second-price (or “2nd price”) auction is a model in which the party that places the winning bid only pays $0.01 (1 cent or the equivalent thereof) more than the second-highest auction that was placed for the asset (in the case of RTB, the ad impression) being auctioned.

One of the most common examples of a platform that uses second-price auctions is Ebay.

For example, if someone placed a $450 bid on an item on Ebay, and you placed a $500 bid on the same item just before the auction ended – you wouldn’t pay $500 to win the item.

You would pay $450.01, as this amount would exceed the second-highest bid amount.

Second-price auctions used to be the most popular model of auction used in RTB – though recent trends have seen first-price auctions become more popular through header bidding.

Two methods of initiating an RTB process: Header bidding vs waterfalling

RTB traditionally used a method called “waterfalling” to signal an ad impression’s availability to a single demand source (such as an ad exchange) at a time.

While the waterfalling method is still sometimes used (both as a standalone configuration, as well as a “fallback” method when header bidding is being used), this process has largely been replaced by the header bidding method.

More information about how header bidding and waterfalling work within the RTB process is available in the guide on how header bidding improves on RTB.

Programmatic Advertising Basics

The RTB process takes place through a sophisticated series of connected technology platforms, which come together to form what’s known as “programmatic advertising”.

Several components of the “programmatic ecosystem”, also referred to as adtech (advertising technology) almost always have direct involvement in the process of RTB.

What is an ad exchange?

Ad exchanges are platforms which facilitate the majority of public RTB auctions online.

As mainstream platforms that any publisher or advertiser can connect to, RTB’s widespread popularity wouldn’t exist without the ease-of-access offered by ad exchanges.

Ad exchanges serve as open digital marketplaces where publishers and advertisers can buy and sell ad inventory through real-time auctions.

In order to carry out the ad serving process in just a few milliseconds, other pieces of adtech such as DSPs and SSPs are used to connect buyers and sellers to ad exchanges.

Platforms like DSPs and SSPs allow parties to communicate large amounts of data surrounding ad impressions – which increases the effectiveness of the ads that are served.

What is a DSP?

Advertisers use an ad tech interface known as a DSP (demand-side platform) to automatically make decisions on their behalf about which ad impressions to bid on.

DSPs are able to assess information about users visiting a publisher’s website by communicating with other pieces of adtech within the programmatic ecosystem.

With human configured guidance, a DSP is able to identify if certain users align with the description of a desired audience, and purchase ad impressions based on that criteria.

DSPs also provide a single interface from which advertisers can manage their advertising campaigns across multiple supply sources (publishers, ad exchanges, ad networks, etc.).

In many cases, DSPs are SaaS platforms that advertisers pay to access and use.

Sometimes advertisers may instead choose to build their own DSP, granting them full control over which suppliers to work with, and sometimes connecting to publisher SSPs directly.

What is an SSP?

Publishers use an ad tech interface known as an S SP (supply-side platform) to automatically manage and sell their available ad inventory as users visit their content online.

SSPs are the publisher-equivalent of a DSP. They allow publishers to connect to multiple demand sources, including ad exchanges, ad networks, and DSPs.

SSPs, along with platforms like DMPs (data management platforms), are responsible for communicating information about user impressions to the programmatic ecosystem.

By communicating this information, along with details like an ad’s placement location, SSPs are able to secure the best possible price for each ad impression on the publisher’s behalf.

Similar to DSPs, SSPs are often provided as SaaS platforms, though some publishers choose to create their own SSP interfaces to gain more control over their serving process.

Platforms like SSPs, DMPs, CDPs, and CRMs work together to provide advertisers with the information their DSPs need to make informed programmatic bidding decisions.

RTB vs Programmatic: What’s the difference?

One of the most common questions in ad tech is, “what’s the difference between RTB and programmatic advertising?”.

The best explanation involves a very brief digital advertising timeline review (the full history of programmatic advertising is also available if you’re interested):

RTB didn’t exist until 2009. When it was introduced in 2009, it was referred to as “programmatic advertising”. The name (wrongfully) stuck due to RTB’s popularity.
New types of programmatic deal models emerged. Two of these deal types (open auction marketplaces and private marketplace auctions) are categorized as RTB.
In other words, RTB is a term that’s used to categorize how these two certain types of deals operate under the entirety of programmatic advertising as a whole.

A deep dive on programmatic deal types provides more information on how RTB deals function differently from their counterpart called “programmatic direct” deals.

That’s not the end of the confusion, unfortunately – due to the existence of OpenRTB.

What is OpenRTB?

OpenRTB (often abbreviated as ORTB) is a standard protocol framework developed by the IAB that powers all aspects of programmatic advertising that use real-time auctions.

In plain English, it’s a universal language that allows all of the diverse ad tech elements within programmatic auctions to communicate and work with one another.

With that description, OpenRTB and programmatic advertising sound confusingly similar.

But they’re not the same.

OpenRTB and RTB are not the same, either.

Let’s break this down:

OpenRTB is the framework that allows auction-based programmatic advertising to communicate with various ad tech platforms and work as a whole.
- This includes four of the most popular programmatic deal types, including open marketplaces, private marketplaces, preferred deals, and programmatic guaranteed deals (the last two deal types don’t use auction processes, despite being built on auction-based technology. Yes, that’s extremely confusing. This guide explains why.)
RTB is used to categorize two of the four most popular programmatic deal types (open marketplaces and private marketplaces) that make use of the auction-based technology provided by OpenRTB. Its counterpart is “programmatic direct”, which is used to categorize preferred deals and programmatic guaranteed deals (which, again, don’t use auction processes, despite being built on OpenRTB).
Programmatic advertising refers to programmatic advertising as a whole – including programmatic deal types that aren’t built on OpenRTB’s auction-based platform, such as automated guaranteed deals.

It’s an undeniably baffling set of terms at first glance, and even when described as clearly as possible, one may be left feeling more confused than when they started reading (such are the joys of ad tech semantics)!

Despite its confusing-by-design nature, RTB is a critical component of programmatic advertising that’s worth understanding.

Why RTB is Important

RTB has continued to play a major role in the operations of programmatic advertising since its initial introduction in 2009.

The ability to programmatically buy and sell ads influenced advertisers and publishers in a number of beneficial ways.

Benefits of RTB for Advertisers

Advertisers originally endured drawn out, manual sales processes and negotiations over the span of weeks, or even months, just to ensure their ads were displayed.

While manual sales still take place in modern times, they’re typically conducted between larger advertisers and publishers directly, making them time-consuming, but lucrative events.

Pricing transparency (which can still be a concern when working with ad networks) and reporting were additional pain points that plagued traditional ad campaign processes.

RTB alleviates these problems by offering these advantages to advertisers:

Significantly cutting campaign preparation and launch times.
Access to a very wide audience range.
The ability to “cherry-pick” the most relevant impressions based on audience data.
Consistent cost-effectiveness optimization through machine learning.
Centralized data and easy reporting options.

Benefits of RTB for Publishers

Publishers have traditionally been wary of RTB platforms – using them almost exclusively as a method of selling “unsold” or “remnant” inventory, due to typically lower prices paid for ads.

In modern times, RTB configurations have gradually shifted in several ways to provide more accommodating options to publishers:

Header bidding (allowing inventory to be auctioned on multiple exchanges at once)
Control over price floors (the minimum bid amount accepted for an ad impression)

… in addition to RTB’s more traditional benefits to publishers:

Reliability (RTB has always served as a “catch all” monetization option for publishers)
Accessibility (ad exchanges allow nearly any publisher to auction their inventory)
Efficiency (automatic placement and pricing of ads alleviates overhead)

Making RTB work for your business

As complicated as it can seem at times, RTB is an easy and effective way for publishers and advertisers to work together by connecting to ad exchanges.

Whether you’re using an SSP or a DSP, a reliable ad server supports your ad revenue efforts by getting ads in front of users in a targeted and efficient way

Setting up an ad server and connecting it to the platforms you plan to use is easy with an experienced team to guide the way.

The AdButler team has over two decades of experience in helping publishers and advertisers to configure and connect their ad servers to diverse programmatic solutions.

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