5 Ways Real-Time Bidding Differs From Direct Buys

For marketers that want to run online display ad campaigns, choosing between direct channels and real-time bidding (RTB) platforms might seem a little unclear at first. After all, the ultimate result is the same: you are placing your ads on a website somewhere.

The process that a marketer must follow, however, to reach that end goal is very different depending on the approach, and each has its pros and cons. To help you understand which approach may be best for you, we’ll begin by contrasting some of the characteristics of traditional direct buys and RTB, and what they mean to brands, agencies and marketers.

1. Targeting – Websites Vs. Audiences

If there is one thing you need to remember, this is it: The fundamental difference between direct buys and RTB is the shift from buying ad impressions in bulk (direct), to auctioning each impression off individually to the highest bidder (RTB).

With direct buys, you are essentially buying impressions in bulk, in order to have your ads seen in a specific context (e.g., on ESPN.com). You have the ability to filter the audience that sees your ads with targeting rules such as geography or browser type, to name a few of the basics, but you’re still ultimately targeting your ads to a specific website.

This works especially well for brand advertisers and agencies that are very sensitive to the placement of their ads, and are willing to pay premium prices to secure such inventory. Brands are also afforded more freedom on the creative level when working directly with publishers. Rich media formats, like page takeovers and other types of custom brand integrations, are currently a luxury only possible with direct buys.

With RTB, each impression is profiled and evaluated in milliseconds during the auction process (while a page loads). You can target ad viewers at a demographic, psychographic and behavioral level, but the reach of RTB enables you to do so across a wide array of sites, rather than on just one, making it possible to target audiences at scale.

So, instead of being limited to buying ads on ESPN.com to reach your audience, RTB allows you to buy ads on (almost) any site that “sports fans” may visit. You also have the ability to take a more agile approach to campaign optimization, since each impression is being bought individually, allowing for more efficient performance and control.

Everyone wants exposure to the right audience, which is why this approach works well for almost all advertisers.

2. Supply – Guaranteed Vs. Non-Guaranteed

Another fundamental difference between direct buys and RTB is the level of certainty that your ad campaigns will receive the volume you want or need.

With direct buys, you agree to buy a heap of ad inventory at a fixed CPM rate that the publisher will deliver in the future. In that sense, the inventory is “guaranteed” or “reserved” for you. Barring any external issues, you will receive the impressions you agreed to purchase at the outset.

This works well for advertisers and agencies that have specific exposure goals and require a high level of certainty that campaigns will deliver. In exchange for paying a higher rate to the publisher, you get certainty of campaign volumes and avoid the naturally competitive landscape of RTB.

With RTB, as the name implies, you are in an auction with a multitude of other advertisers, all bidding at different rates (explained later) for each impression, in real time. In such a dynamic environment, the ad inventory is considered “non-guaranteed,” due to the unpredictability of the marketplace.

When you don’t know what other people are bidding, there is simply no guarantee that you will win the impression you bid on. Furthermore, guaranteed buys usually have priority over RTB. This means, if the demand for guaranteed inventory on a particular site increases, the supply available on RTB for that site correspondingly decreases.

3. Workflow – Manual Vs. Programmatic

Another difference between direct buys and RTB is the workflow of launching campaigns.

For the most part, direct buys consist of a manual process that involves hours of human effort in planning and execution (pdf download). It requires reaching out and making initial contact with the publisher’s sales team, negotiating and planning the “insertion order” (a contract outlining the terms of the ad campaign), emailing ad tags back and forth, and so on, all in preparation to launch.

The publisher ultimately controls the flow of the campaigns using their ad server, which means that there is a natural delay when it comes to campaign control and reporting. This asynchronous process is not only prone to miscommunication and human error, but also requires hours of human time on something that could be handled instantaneously with a programmatic solution.

Then, there is the issue of management complexity. Take the traditional media buying process – negotiating a direct buy with a publisher, and working through all the setup – and try multiplying it by ten or twenty. Now, imagine the complexity of having to run them simultaneously, like an agency would, and you quickly realize the overhead required for management alone. Not to mention the process of negotiating with various sales teams, which is an art in and of itself.

In contrast, RTB is a primarily programmatic process driven more by user interfaces and algorithms, and less with phone calls, emails and contracts. There are still manual elements (such as ad quality review, tech support, and billing), but nothing close to what is necessary when dealing directly with publishers — let alone a group of them.

As a result of the programmatic process, more of the campaign components are real time (i.e., nearly instantaneous) in nature, from controlling the flow of campaigns, to reporting and optimization.

To be clear, even though RTB is a programmatic channel, that does not mean that direct buys won’t eventually enjoy a programmatic future. There are several ad tech vendors out there giving publishers the ability to offer programmatic access to inventory on a guaranteed basis, all while maintaining control over pricing and ad quality. These technologies have yet to reach critical mass, so for the time being, we should probably keep direct buys in the “manual” workflow category.

4. Pricing – CPM Vs. eCPM

Another primary difference between direct buys and RTB is the nature in which inventory is priced. This difference stems from the fact that with direct buys you are buying impressions in bulk; whereas with RTB, you are bidding on individual impressions separately.

Direct buys are almost always priced in fixed CPM rates, where the inventory is sold in bulk and all impressions are essentially priced the same (e.g., $10 CPM, or $10 per thousand ad views). This pricing model has been the standard since the inception of the banner ad, and doesn’t look like it will be going anywhere in the foreseeable future.

With RTB, each impression is auctioned off. Since each impression is priced individually (and since a cost-per-impression metric would be wildly impractical to advertisers from a reporting perspective), the de-facto metric for RTB pricing is effective CPM or eCPM.

Another way of thinking about how these two pricing models differ is by using an analogy like apples. Buying ad inventory directly from publishers is like buying giant bushels of apples. You pay a fixed price for each batch, and receive various levels of quality within the bunch.

But with RTB, you are essentially bidding for each apple (impression) based on its individual characteristics. This means that you still end up with 1,000 apples at the end of the day, but the overall cost for the batch will be a dynamic value derived from all the individual prices you paid for each – hence the term effective CPM.

5. Accessibility – Barriers To Entry

The final difference we will cover between direct buys and RTB is the accessibility of each approach. Given the “traditional” nature of direct buys, they typically have much higher barriers to getting started compared to RTB.

The first barrier faced by marketers performing direct buys is the sizable minimums in ad spend required by most publishers to get started. In general, you can expect a commitment of at least $5,000-10,000 for a direct buy of guaranteed inventory.

On much smaller sites, you can get away with paying flat rates of a few hundred dollars. For larger publishers with attractive inventory, you won’t get any attention unless your budget is in the 5- to 6-figure range. To many small- to medium-sized marketers, this can be a non-starter.

Remember: this is considered “premium” inventory in the eyes of the publishers, so don’t be surprised when you hear the CPM costs and minimum spends. The truth is, when going directly to the website publisher, there is an unspoken rule that all prices are negotiable, so website publishers will often quote surprisingly high rates. It’s not uncommon to receive rate cards anywhere from $10 to $75 CPMs (and beyond!) from many ad sales teams. Such rates can be completely impractical for anyone but large brands.

Serious media buyers also need to consider the costs for an advertiser-side ad server. If you are managing direct buys from multiple publishers, you want to be aggregating and auditing your own numbers, in case of reporting discrepancies. You also want a central place to log in to and reduce the complexity of logging in to multiple publisher ad servers.

I can elaborate on this point in a future article, but for now, it’s important to understand that with direct buys there are extra costs associated and technical learning curves to overcome that may not be obvious at first thought.

As opposed to direct site buys or buys through large ad networks, which have higher barriers for marketers to get started, buying RTB inventory through a DSP (depending on the one you choose) has a much lower barrier in terms of financial commitments and operational management. Obtaining an ad server also isn’t necessary, since DSPs provide the ad serving and publisher integrations on your behalf. So, for the marketer, there is far more control and far less friction in the media buying process in a programmatic RTB environment.

Moving Forward

While buying ad inventory directly can be inefficient (not only from a price perspective, but also operationally), it does provide a number of benefits, which make these hurdles palatable to certain types of advertisers. RTB overcomes these pricing and operational problems, but introduces its own: guaranteed volume.

Hopefully, we now have a clearer picture of the differences between direct media buying and real-time bidding. Keep in mind, it’s quite possible to use both approaches in a complementary way, but it requires a data-driven mindset and a methodical approach to optimization and scaling. Moving forward, we will discuss these methods so you can apply them to your own display ad strategy.