For RTB Success, Focus on Value — Not Cost
Scanning the agendas at this year’s search trade shows as well as popular articles on the industry’s leading search websites, it is apparent that display advertising via real-time bidding (RTB) is rapidly gaining attention in the search advertising community. According to IDC, the RTB market was $3B in 2012 and is projected to reach $14B in 2016, representing a huge opportunity for search buyers.
As Nielsen noted in their Q3 Social Media Report, consumers spend 4 percent of their online time engaged in search, and that sliver of opportunity has become the most successful form of online advertising and a highly efficient market. However, there’s a big market—the majority of the world’s more than $500B in annual advertising spend—further up the funnel, and deploying budget effectively there can lead to large gains in advertising performance.
Real-time bidding is a shift in the display advertising market as profound as the introduction of AdWords was to search, creating a unique and powerful opportunity to engage consumers with precision and scale not previously accessible in display. So it’s not surprising that search-focused marketers and their agencies are increasingly looking to RTB display advertising as a channel for driving incremental conversions from consumers’ “other 96 percent time.”
In this article we’ll take a look at why real-time bidding is fundamentally different from traditional display buying and why search marketers are well positioned to capitalize from the shift to RTB.
The Mechanics Of Real-Time Bidding
RTB represents a fundamental shift from negotiated display buys. Exchanges facilitate auctions one impression at a time, with the highest bidder earning the right to show an advertisement. For buyers, real-time display promises to deliver more targeted audiences, boost efficiency, and improve ROI. Yet many advertisers have not extracted full value from RTB because it requires moving beyond display advertising’s traditional laser focus on media cost, typically expressed as a cost-per-thousand (CPM).
In a traditional display sales model, the seller promises to deliver a certain number of impressions within a set time for a fixed cost. This aggregate approach naturally leads the buyer to focus on lowering the CPM during negotiations, since the campaign’s overall effectiveness will improve in direct proportion.
For example, if an airline advertiser looking to drive online ticket sales negotiates its CPM for a certain impression volume down from $10 to $5, while ultimately generating the same amount of revenue from the campaign, the overall effectiveness of its buy has doubled.
Real-time bidding is different. In RTB, the advertiser buys only the individual impressions it wants at a unique price determined for each impression. Just like in search advertising, an auction is conducted for each impression, and the highest bidder wins the impression. And with RTB, the buyer determines an impression’s value before naming the price they are willing to pay for it.
This dynamic is remarkably similar to search advertising. Determining the optimal price for a user viewing a given keyword at a particular time is exactly what makes a search buyer successful. Impression-based buying also compels big changes to campaign strategy, evaluation and optimization that align well with the expertise of the search buyer. Let’s drill down further to see why.
The Shift From Cost To Value
The move to impression-based buying dramatically shifts the relationship between cost and value for display media. In an RTB environment, cost per action (CPA) becomes a far more actionable metric by which to evaluate and optimize media investments. When display buyers approach real-time advertising with the same mind-set as for a traditional CPM buy, they miss the true benefits that RTB-powered advertising can deliver.
In RTB, each impression has both a unique value and a unique cost. Some consumers are more likely than others to purchase certain products; different advertising placements will have varying degrees of influence over consumers; and certain advertising may have differing effectiveness at varying days and times. That makes some impressions more valuable than others. For example, an executive who urgently needs to purchase a premium airline ticket to a conference in Las Vegas is likely a far more valuable prospect than someone casually considering a cut-rate Vegas weekend getaway. To our airline advertiser, an impression delivered to the executive is likely worth far more than an impression delivered to the leisure traveler.
We have seen this principle demonstrated across thousands of campaigns within all industry verticals. In some cases, higher-priced impressions have been 100 times more effective at influencing consumer behavior. Of course, this doesn’t mean a buyer should simply pay more. Rather, media buyers should shift their focus from cost to value. Too many RTB buyers focus purely on cost, set a CPM cap on their bids, and then miss many valuable impressions that could deliver a strong CPA.
Consider the figure below, which compares the results from an RTB campaign to a traditional display buy. Each dot in the graph on the right represents an impression bought through RTB (or a group of impressions at the same cost). The CPM of each impression is calculated by multiplying its cost by 1,000; these costs are shown on the horizontal axis. The vertical axis shows the resulting CPA in dollars attributed to those impressions. The solid line shows the trend of the actual CPM against the CPA for each group of impressions. Notice how the dotted line now dips down to the right in contrast to a traditional aggregate display buy. The conclusion: When an advertiser pays a higher price for the right impression, is actually results in a lower CPA.
The Implications For Search Buyers
This fundamental focus on value over cost should be very familiar to most search buyers. Some keywords deliver greater ROI than others, and organizing audiences into micro-segments helps drive success.
Most search buyers are already evaluating and optimizing their campaigns based on an effective cost per action (eCPA) by weighing their media spend against the total actions attributed to each keyword or strategy. Search buyers are also accustomed to managing their bids relative to desired conversion volumes, with an inherent understanding of the supply curves at work in a competitive market—something display ad buyers are only just beginning to grasp.
Search buyers are well positioned to capitalize from display’s rapid shift to RTB. For starters, here are a few suggested strategies to ensure you’re making the most of real-time bidding by focusing your strategy on value over cost:
- Consider effective CPA (eCPA) as the fundamental metric when optimizing and measuring the success of real-time display campaigns.
- Remember that while RTB display has many similarities with search, there is one fundamental difference: In search, the user’s expected interaction is to click, and the click is a solid metric. However, in display users do not expect to click and because only a subset of consumers ever click on ads, optimizing to clicks can actually be anti-optimal for your campaign performance.
- Invest in media buying and measurement systems, including ad servers and analytics, that provide visibility into the chain of events that leads up to a sale and better informs your approach to campaign attribution. Most marketers can say which media partner delivered the “last view” or “last click” before a sale—but not all can tell who first brought that prospect to the site or how influential a given ad was toward causing a successful outcome.
- Use existing data to establish realistic CPA goals and attribution models, and communicate those goals clearly to targeting partners. Setting realistic goals is critically important for real-time display buying. Unrealistic CPA goals will not only strain relationships with display partners, but can also hurt your bottom line by causing under-delivery of your expected conversions.
These are fundamental best practices to capitalize on the dynamics of impression-based display buying, and their similarity to search advertising in most facets is a key reason why search buyers are arguably better positioned than traditional display buyers for this new world of RTB-based display advertising.
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